On 4 November 2020, the FCA issued a statement confirming its approach to the share trading obligation (STO) at the end of the Brexit transition period, if mutual equivalence is not agreed. The statement follows an updated statement on the same topic from the European Securities and Markets Authority (ESMA) last week.

In the statement the FCA states that mutual equivalence between the UK and the EU should be easy to agree and remains the best way of dealing with overlapping STOs. As set out in previous FCA statements, the FCA considers the ISIN or currency that a share carries and trades in should not determine the scope of the STO.

The FCA will use the Temporary Transitional Power (TTP) to allow firms to continue trading all shares on EU trading venues and systematic internalisers (SIs) where they choose to do so, and where the regulatory status of those venues and SIs permits such activity. Before the end of the transition period the FCA will publish a transitional direction to give effect to this. However, the FCA will monitor market developments closely and will review the use of the TTP if conditions change, and it remains open to dialogue with ESMA.

Under the FCA’s approach, trading venues in the EU can be used for the purposes of executing trades in shares by UK participants, providing the venue has ensured it has the relevant permissions under either the UK’s longstanding regimes for overseas access or the temporary permissions regime (TPR).

As previously communicated by the FCA, all EU trading venues that continue to have UK participants or undertake relevant regulated activity in the UK from the end of the transition period will need to be a UK Recognised Overseas Investment Exchange in relation to its business as an investment exchange, be using the TPR or be certain that their activities meet all the conditions required to benefit from the Overseas Persons Exclusion.

In another statement Nausicaa Delfas, Executive Director of International at the FCA said:

‘At the end of the transition period, the UK’s and EU’s regimes will be the most equivalent in the world, but as it stands this has not been recognised by the EU. While we note ESMA’s recent clarifications to reduce the potential overlap of an EU and UK STO, we chose this simple and comprehensive approach rather than to replicate restrictions based on the jurisdiction of the share issuer, or the currency in which a share is issued.

‘We have taken this approach to ensure UK-based investors and asset managers continue to have the freedom to find the best possible trading terms, and to get the best outcome for themselves and their customers. We want to preserve freedom for issuers from all jurisdictions to choose where and how to raise capital to support their business activities.

‘We remind all market operators in the EU that wish to continue to undertake regulated activity in the UK of the need to ensure they have the correct permissions in place.

‘The FCA will continue to take any necessary steps available to mitigate risks of disruption that may ensue from regulatory changes to ensure UK markets remain attractive to global investors with our open, interconnected and competitive regime.’