Post-Brexit regulatory divergence: a practical tracking framework
The Financial Services and Markets Act 2023 provided the UK government with broad powers to revoke retained EU financial services law and replace it with UK-designed rules — the so-called Edinburgh Reforms programme. The practical consequence is accelerating divergence between UK and EU financial services regulation, creating a two-regime compliance burden for firms that operate in both jurisdictions. Tracking this divergence — and maintaining a clear picture of where UK and EU rules are aligned, where they differ materially, and where they are moving in opposite directions — is now a core compliance capability for cross-border firms.
Areas of material divergence already embedded in the UK framework include: the UK Prospectus Regulation replacement (under FSMA 2023 powers, with new FCA rules in consultation); the UK MiFID II reform programme, which has moved faster and in some respects further than the EU's MiFID review; UK EMIR trade reporting, where the revised UK EMIR reporting standards (effective September 2024) differ from EMIR Refit requirements; the UK AIFMD retained framework, which is being reviewed with a view to a more proportionate UK regime; and the UK Listing Rules reform, which took effect in July 2024 and diverges significantly from EU prospectus and listing requirements. The SDR/SFDR divergence in sustainable finance has been noted elsewhere in our guidance.
For firms with EU-regulated subsidiaries, the position is further complicated by the need to ensure that EU entities comply with EU rules while UK entities comply with diverging UK rules — and that group-level policies and procedures are sufficiently granular to capture the differences. A group compliance framework written against EU rules at the time of Brexit will, in 2025, contain material gaps relative to UK requirements in several areas. Firms that have not reviewed their frameworks since 2020 should treat an equivalence mapping exercise as a priority.
The third-country treatment of UK firms in the EU is also an ongoing consideration. EU equivalence decisions for the UK are limited in scope, and UK firms seeking to access EU markets must generally do so through EU-authorised entities. The European Commission's periodic review of third-country regimes means that the status of any given equivalence decision can change, and firms relying on equivalence should monitor developments closely. The FCA's own third-country regime — which governs how the UK treats overseas firms — is also evolving, with HM Treasury consulting on a revised overseas persons regime.
Building a divergence register
Firms operating across both jurisdictions should maintain a regulatory divergence register that maps the key rules in each framework, identifies areas of substantive difference, and assigns ownership for monitoring and responding to change. The register should be reviewed at least quarterly and should be used to inform legal entity governance decisions, product design, and compliance programme priorities. Horizon scanning should cover both UK and EU regulatory pipelines, as changes in either jurisdiction may require corresponding changes in the other.