UK financial institutions must continue to abide by EU regulations in the wake of ‘Brexit’, while regulations such as Solvency II are likely to remain in place, according to comment from the industry.
The referendum on EU membership saw 52 percent of voters opt to leave the union, however the UK is yet to activate Article 50 of the Lisbon Treaty, which will begin the two-year process of withdrawal.
In a statement, the FCA stressed that any UK financial regulation derived from EU legislation will remain in place until any changes are confirmed by the government.
It said: “Firms must continue to abide by their obligations under UK law, including those derived from EU law, and continue with implementation plans for legislation that is still to come into effect.”
This includes Solvency II, an EU directive that changes the way insurers are governed, and mandates asset managers to provide look-through data on their funds to their insurer clients.
Ashley Smith, senior vice president of business development at look-through data utility Silverfinch, said: “While Solvency II will carry on for continuing members of the European Union, UK companies will also have to observe the rules until such a time as a replacement is agreed – and whatever happens, UK companies will have to meet the regulations for their European operations.”
Jonathan Howe, UK insurance leader at PwC, suggested, however, that too much time, effort and money has been invested into Solvency II, pointing out that it is already enshrined into UK law.
He said: "The insurance industry should not expect significant dissolution of ‘cumbersome’ EU regulation, given the perception that the UK has a history of ‘gold plating’ insurance regulation.”
With regards to regulation in a more general sense, Julian Korek, global head of compliance and regulatory consulting at Duff & Phelps drew attention to the two-year transition period and process of negotiation with the EU.
He said: “This negotiation will be a complex process, but we should not necessarily expect to see a great deal of change in the arena of financial services, since the UK is likely to adopt most EU legislation in this area.”
Korek pointed out that a lot of EU financial services legislation, including Solvency II, have been in the form of directives, and so have already been transposed in to UK law and are enforced by the FCA.
He said: “The wholesale adoption by the UK of current EU regulation would ensure the UK’s regime could be deemed ‘equivalent’ to EU rules. However, such equivalence is not automatic and achieving it requires an equivalence assessment by the EU authorities.”
“The implication for UK fund managers depends heavily on what products they offer and the location and nature of their clients. As many funds and managers raise assets globally, the Asset Management industry has proven resilient to pressures before.”
In its statement, the FCA noted that the long-term effects of ‘Brexit’ depend partly on “the relationship that the UK seeks with the EU in the future”.
It concluded: “We will work closely with the government as it confirms the arrangements for the UK’s future relationship with the EU.”
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