Financial Institutions agree on post Brexit measures for the derivatives market

Financial Institutions agree on post Brexit measures for the derivatives market

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Written on

Feb, 2019

Updated on

Aug, 2020

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The FCA (Financial Conduct Authority), BoE (Bank of England) and the CFTC ( Commodity Futures Trading Commission) have come to an agreement that no matter the outcome of Brexit, the derivatives markets between the United Kingdom and the United States will remain intact and will not face any regulatory uncertainties under any circumstances.

Because of the massive debate on how the UK is going to leave the EU, most countries have been trying to figure out the market relationships between them and the UK. However, it seems that the United States are the only ones that came to a conclusive decision, and the decision is quite simple. Nothing is going to change. All US-based trading venues, Central Counter Parties (CCPs) and companies will be able to continue their operations on the UK Island without any interference.

The main topic of discussion

The most discussed matter about the whole ordeal was, whether or not the UK will be content with the CFTC’s regulatory framework, now that they will no longer be under the jurisdiction of the European Commission’s regulation. The sole reason why the CFTC was able to operate in the region unhindered, was the direct correlation between themselves and the European Commission. It was deemed that both regulators had the same frameworks. After the announcement of Brexit, it was imperative to determine whether or not the UK would retain the European Commission’s regulatory traits, and it seems that they will indeed.

Andrew Bailey The Chief Executive of the FCA commented on the agreement, saying that cooperation with international partners has always been and always will be in the interests of the FCA. The CFTC and UK’s regulator have a long history of combining efforts to regulate the trading process. Bailey also added that the cooperation brings nothing but benefit to both of the regulators as it becomes easier to share knowledge and keep a consistent regulatory framework.

Exchange of Information

Speaking of learning from each other. Both sides have recognized the importance of clear and fast communication, because of which an update to the Memorandum of Understanding (MoU) will be held. With this update, the FCA will formally recognize all of the CCPs operating under the CFTC regulatory framework.

Mark Carney, the Governor of the Bank of England, highlighted the fact that both the UK and the USA, as owners of the largest and most diverse derivatives markets, are responsible to keep it intact and free-flowing. Therefore this agreement was paramount in order to keep previous agreements still operational. Namely the accommodation of US regulated firms on the EU territory.

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