Kay Swinburne, MEP and member of the Economics and Monetary Affairs Committee in the European Parliament, warned that U.K. financial firms would still have to comply with European legislation even if the country votes to leave the EU.

The U.K. is due to hold a referendum on ‘Brexit’ – whether to remain in the EU – by the end of next year. Swinburne said in a speech to the Association for Financial Markets in Europe yesterday that some people may think that if the referendum supports Brexit, financial firms would not have to comply with EU financial services legislation.

“Let me burst that bubble right now,” she said. “Ask Norway, ask Switzerland, for that matter ask South Africa. If you want to have access to the EU market, you have to comply with EU rules.”

Swinburne gave the example of the U.S. which has spent four years trying to meet EU equivalence standards for central counterparties to clear over-the-counter derivatives. “That should give a taste of what we should expect as a financial centre outside of the EU,” she continued.

She emphasised that even if the U.K. votes for Brexit, the country would still have to implement MiFID II, regulations covering European financial markets, which are due to come into force in January 2017. The European Securities and Markets Authority has asked for a move to January 2018 and Swinburne said the general principle of a one-year delay has been accepted by European Parliament, Commission and Council, who all need to approve a postponement.

“My main prediction for MiFID implementation this year is to expect the final level 2 [text] to be agreed in the next few months,” she added.

However she also warned that the MiFID II delay is only to allow regulators and the industry more time to set up their technology systems and prepare for the coming changes. “Don’t expect another year of lobbying for things that have already been decided,” she added.

Swinburne only expects changes to Esma proposals to bring them in line with the level 1 legislative text in areas such as position limits, pre-trade transparency for non-equities and the ancillary activities exemption. She said: “Most of what is applicable in this forum with regards to the equities world, is already out there.”

Swinburne also expects more innovation in financial markets through fintech as apps, internet platforms and social media replace interaction with a bank manager, investment fund manager or pension advisor. However she questioned how many start-ups can actually take off this year and the role of financial supervisors and regulation in supporting these changes.

“I’m sure if the EU had existed at the time cool box makers would’ve opposed the development of refrigerators, and someone else would’ve lobbied me on health and safety grounds,” she continued. “The FCA’s regulatory sandbox approach is one that can and should be learned from across the EU.”

The UK regulator launched Project Innovate and the Innovation Hub in 2014 to provide direct support to firms trying to launch new products into the market which may benefit consumers and to be the centre of the FCA’s innovation policy. Last November Christopher Woolard, director of strategy & competition at FCA, said in a statement that the project had helped approximately 177 firms and the regulatory sandbox provides a safe space for firms to enter the market and experiment with new ideas.

The FCA’s approach was also highlighted at Esma’s Financial Innovation Day last month. In his keynote speech Adrian Blundell-Wignall, special advisor to the Secretary-General of the OECD on financial markets and director in the Directorate for Financial and Enterprise Affairs, praised the FCA’s Innovation Hub “Perhaps some type of “regulatory sandbox” model, may be a good way to go,” he added.

Swinburne said her biggest prediction for this year is that there will be an increasing amount of financial regulation originating at a global level.

For example, yesterday the Basel Committee on Banking Supervision issued the Fundamental Review of the Trading Book framework which revises the minimum capital requirements for market risk.

The Global Financial Markets Association, the Institute of International Finance and the International Swaps and Derivatives Association said in a statement: “We are concerned that despite the BCBS’s reiteration not to significantly increase overall capital requirements, trading book capital will increase by 40% under the new rules based on the BCBS’s impact assessment. We worry that the rules may have a negative effect on banks’ capital markets activities and reduce market liquidity.”

Featured image by Jamdesign/Dollar Photo Club