Regulatory burden labelled top issue faced within European listed derivatives markets

New report from Acuiti also notes the risk associated with new regulations as being a key concern on the horizon for market participants within the asset class.

When assessing the top challenges expected to be faced in the next five years, more than half (53%) of respondents ranked regulatory burden as the main issue facing their firm, according to a new report by Acuiti.

Regulatory burden has been a key concern for market participants since the Global Financial Crisis in 2008, with the report from Acuiti – in partnership with FIA – adding that new frameworks are ‘lengthy and complex’, requiring significant resource mobilisation to navigate current regulatory requirements.

Most respondents felt that the level of European regulation on their respective firms was disproportionate, however it’s worth noting that nearly a third of respondents were indifferent on this viewpoint.

Looking at specific EU regulations, Investment Firms Directive (IFD) and Investment Firms Regulation (IFR) were highlighted as the most challenging, with more than half of respondents expecting ‘critical’ or ‘major’ challenges associated with the implementation of these regulations.

European capital regulations, including IFD and IFR, have constituted a major compliance burden for principal trading firms, with significant implication for the prudential requirements that these firms have become subject to.

The report noted that the cost implications have pushed various principal trading firms to give up their Mifid II licences or relocate their headquarters or specific trading desks outside of the EU.

Interestingly, when looking at the risks on the horizon within the European listed derivatives markets, regulatory risk was found to be the second largest risk that respondents were most concerned about – coming in just slightly lower than cyber risk.

“Regulation is a constant of listed derivatives markets – when one framework takes effect another is usually coming down the line,” Acuiti said in its report.

“While market participants frequently support the objectives of regulation, often there are unexpected consequences from rule proposals. These then require substantial lobbying efforts to counter or moderate.”


Elsewhere in the report, Acuiti explored the impacts of Brexit just over four years since the UK’s exist from the EU. Looking at the impact Brexit has had on London as a financial centre, most respondents (51%) believe that the city will remain a financial centre but at diminished size and influence.

Despite initial viewpoints that Brexit would lead to regulatory independence from the EU, the report suggests that appetite for this routed has shifted.

A key portion (41%) of respondents felt that the UK should pursue some divergence from the EU, however, noting this should not be done at the expense of equivalence with the bloc’s regulations. A larger proportion (45%) felt that the UK should seek convergence with EU laws to reduce regulatory fragmentation.

“While the European listed derivatives industry has faced multiple challenges during the last five years, its market participants are viewing the next five years ahead with optimism,” Acuiti said in its report.

“Challenges have not dissipated, with the effects of Brexit still playing out, cyber risk rising as a threat to systems and regulation imposing a constant and heavy burden on operations. However, confronting this multitude of challenges had also created a fortified and resilient industry.”