The UK’s Financial Conduct Authority (FCA) is determined not to comply with the European regulatory approach on the regulation of foreign exchange derivatives until it is legally forced to in 2017 or later, according to a report in Risk Magazine.
The dispute between the European Commission (EC) and the UK FCA has been ongoing since the start of the year, and is centered around which trades must be reported and cleared by regulated firms.
The EC and the European Securities and Markets Authority’s (Esma) consensus is that forex forwards are derivatives which fall under mandatory reporting regulations, however, the FCA does not currently qualify them as such.
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The EC insists that the FCA cannot avoid legislating mandatory FX forwards regulations. “The UK must ensure, like any other member state, its legislation is fully in line with this approach. It’s clear the stance taken in the UK, as we understand it, is not in line with our approach,” the magazine’s EC source reportedly said.
The FCA on the other hand, says it will not change its position until the last moment, this being the implementation of the new Markets in Financial Instruments Directive (Mifid II). As London enjoys a unique leading position in the forex trading world, the UK has a vested interest to protect its regulated firms and not to burden them with excessive regulations, in order to protect profits and jobs for the city.
Differences arose because the European Market Infrastructure Regulation (Emir) could be interpreted differently by EU member states, and the UK implementation excludes forex forwards, non-deliverable currency forwards and spot transactions for forex and commodities from the definition of a derivative, as long as they satisfy a commercial purpose.