Brexit's Continuing Compliance Headaches: A Rollercoaster Ride Eight Years On
United Kingdom's Exit from European Union: A Major Political Division
Six years after Brexit, the regulatory landscape for the City of London remains a rollercoaster ride, with ever-changing frameworks and ongoing negotiations with the EU casting a shadow over compliance.
Justin Cash's Scoop – May 12, 2024, 7:00 PM
Shifting Sands Underfoot
After the exit from the EU, regulators stepped up as the , attempting to navigate the complex post-Brexit waters. Yet, it seems that the rules of the game are still far from set in stone.
Clearing and Equivalence Limbo
The EU continues to rely on London's central counterparty (CCP) infrastructure for derivatives clearing. The latest equivalence extension runs until June 2028[3], putting firms in a constant state of anxiety, facing recurring compliance risks. Looking ahead, there's a real possibility that repeated extensions may reach their end, resulting in market chaos. Furthermore, the EU's persistent calls for the relocation of clearing activity within the bloc have gone unanswered, we're left with no choice but to stick with London-based infrastructure.
A New Era for Cryptoassets
In April 2025, the UK government unveiled draft legislation to fully regulate cryptoassets, including stablecoins, trading platforms, and custody services[4]. Although the framework is still under consultation, it aims to solidify the UK's position as a global fintech hub, requiring firms to obtain full authorization for crypto-related activities. A stark contrast to the previous registration-only regime, this development could mean enhanced operational standards and increased regulatory burdens for firms.
Sectoral Deregulation Concerns
Recent analyses have raised concerns over potential in the City, with critics pointing to weaker consumer protections and conflicts of interest in rule-making[1]. As the City attempts to attract foreign investment through regulatory flexibility, these developments could undermine the robust regulatory environment that was once a cornerstone of London's financial prowess.
Asset Management Reforms on the Horizon
By mid-2026, the Financial Conduct Authority (FCA) plans to replace EU-derived rules with UK-specific regulations for the £12 trillion asset management sector[5]. Proposed changes include streamlined global market access and revised disclosures, with consultations running until June 2025. These reforms align with a broader strategy involving over 50 growth-focused regulatory actions, signaling the FCA’s commitment to fostering growth and unlocking the City's potential.
| Area | Status | Compliance Impact ||----------------------|-----------------------------------------------------------------------|-------------------------------------------------------------------------------------|| Derivatives Clearing | Temporary EU equivalence until 2028[3] | On-going due diligence costs; contingency planning for equivalence lapses || Cryptoassets | Draft legislation under consultation (final rules expected late 2025)[4] | Firms should prepare for full authorization requirements and enhanced operational standards || Asset Management | New UK-specific rules proposed by mid-2026[5] | Concurrent compliance during the transition; potential divergence from EU standards |
Ongoing Challenges
As the EU-UK stalemate persists over "letterbox firms" (EU-registered entities operating from London), the threat of further fragmentation looms large[3]. Although technical talks at the May 2025 summit could help to alleviate disputes, the lack of a permanent financial services accord in the Trade and Cooperation Agreement remains a structural weakness. Compliance teams are now grappling with parallel UK and EU regimes, particularly in cross-border derivatives and fund management.
- The post-Brexit waters are navigated by regulators, functioning as the adults in the room, yet the rules remain elusive and ever-changing.
- The EU's reliance on London's central counterparty (CCP) infrastructure for derivatives clearing extends until June 2028, causing firms to maintain a constant state of anxiety due to ongoing compliance risks.
- The UK government announced plans to fully regulate cryptoassets in April 2025, aiming to position the nation as a global fintech hub, with firms expected to obtain full authorization for crypto-related activities.
- Concerns have arisen regarding potential offshore-style deregulation in the City, with weaker consumer protections and conflicts of interest in rule-making posing a threat to London's financial prowess.
- By mid-2026, the Financial Conduct Authority (FCA) plans to replace EU-derived rules with UK-specific regulations for the £12 trillion asset management sector, focusing on streamlined global market access and revised disclosures.
- Ongoing challenges include the EU-UK stalemate over "letterbox firms," which threatens further fragmentation due to the lack of a permanent financial services accord and parallel UK and EU regimes in cross-border derivatives and fund management.
- Brexit's impact on the regulatory landscape continues to cause headaches for the financial industry, including banking and insurance, as complying with both UK and EU regulations becomes increasingly complex, particularly in the evolving landscape of DeFi, crypto trading, and the newly regulated token sector.
