EU market rules delay raises questions for post-Brexit Britain

LONDON (Reuters) – Britain will have to decide whether banks and asset managers should comply with costly new European Union securities rules that are being delayed from September until after its transition period for leaving the bloc ends, lawmakers were told on Wednesday.

After industry lobbying, the bloc’s European Securities and Markets Authority (ESMA) proposed on Tuesday to postpone until February 2021 rules that impose cash penalties for failures to settle share trades on time.

Settlement refers to money exchanged for ownership of securities like bonds. Thousands of trades fail each day, because of an inability to provide the cash or securities on time.

ESMA said market participants had highlighted the need for more time given the extensive changes to IT systems that will be needed for such a “major development”.

The rules implement a section of the EU’s new Central Securities Depositories Regulation, or CSDR.

They had been due to come into force in September, during the transition period that began after Britain left the bloc on Jan. 31 and ends on Dec. 31. Britain has committed to applying EU rules during the transition period.

Britain’s finance ministry said that at the end of the transition period, Britain will be able to review and implement its own regulations.

“We will continue to be committed to the highest standards of regulation and supervision,” the ministry said. “We are seeking a friendly future relationship with the EU and an outcomes-based approach to regulations.”

“Do UK businesses have to continue investing to comply with those rules?” Peter Bevan, a lawyer at Linklaters, told a House of Lords sub-committee on EU financial affairs on Wednesday.

Britain’s Financial Conduct Authority said it will be up to the government to decide which EU rules are applied.

“The main challenge is that custodians are struggling to access the granularity of information needed to assess the financial instruments that could fail to settle under CSDR,” said Heiko Stuber, a senior manager at SIX, a Swiss exchange and services group.

Bevan said that there will be other cases of “in flight” rules that were not already in force before Brexit, and that Britain needs a better regulatory mechanism for deciding quickly on compliance to give businesses certainty.

(Reporting by Huw Jones; Editing by Hugh Lawson and Lisa Shumaker)