The detailed implications of Brexit for UK financial services regulation remains unclear.  Financial services firms are surrounded by a complex web of domestic and European policy, which cannot be dismantled or amended overnight.
Brexit

With negotiations still ongoing and the date of withdrawal rapidly approaching, firms face the difficult task of planning for multiple scenarios. Brexit is obviously a complex matter impacting many cross border industries. In respect of financial services, some key issues to consider include:

  • How markets will be accessed;
  • Firm authorisation and relocation issues;
  • Passporting rights, third party status and equivalence regimes;
  • Immediate changes to UK regulation and legislation;
  • Central counter parties and euro-denominated clearing;
  • How funds will be marketed and sold cross border.

Implementation period

The UK authorities have stated that they are confident there will be an implementation period agreed between the UK and the EU which will come into effect after the UK leaves the European Union.  This would mean that for a fixed period financial services firms would be able to trade on the same basis as they do today and will also need to comply with any new EU law which comes into effect before 31 December 2020.

Conversely, the EU authorities have not outwardly committed to any such plans.  In fact Andrea Enria, the Chairman of the EBA, has warned that “firms cannot take for granted that they continue to operate as at present nor can they rely on as yet unrealised political agreements or public policy interventions. Risks, capacity and legal implications must be examined and addressed.

The UK authorities have a number of contingency plans including a new temporary permissions and recognition regime.  This should allow non UK financial services firms to continue their activities in the UK for a time limited period after the UK has left the EU in the event there is no transition period, and provide sufficient time to apply for authorisation in the UK.

For UK firms looking to continue business in the EU, the European Commission has stated that in the event of a no deal scenario the UK would be treated as a third country firm for the purposes of financial services where such regimes already exist.

What now?

Financial services firms operate across European borders – whether it’s a UK firm with European customers, a pan-European group or non-EU firms with subsidiaries in the region. Brexit will have a material impact and management need to be aware of how their firm, services and clients could be impacted.  Firms need to plan for the range of possible outcomes which could come their way. Business-critical decisions need to be taken and plans drawn up so make sure you keep an eye on the latest developments.

We can help

Bovill can help you operate in the UK and EU in the longer term. We can help with authorisations, governance reviews, prudential challenges, training and long term regulatory planning. We can also help you identify what you will need to do to be able to operate in the EU after Brexit and implement any changes – whether that is understanding how to operate within private placement regimes or helping you get authorisation in specific EU states. Wherever you are in the process give us a call.

Key statements and papers:

The EU (Withdrawal) Bill (EUWA) will:

  • repeal the European Communities Act 1972 on exit day
  • transfer EU law into UK domestic legislation, where appropriate
  • create powers to make secondary legislation, where necessary, to correct existing laws and implement a withdrawal agreement (this is expected to involve between 800 and 1000 pieces of secondary legislation)
  • maintain the current scope of devolved decision making powers in areas currently covered by EU law.

HM Government white paper – 12 July 2018

Sets out views on the future relationship between the UK and the EU.  This includes their proposals in relation to financial services where they state that they will seek, amongst other things, “a new economic and regulatory arrangement for financial services.”

HM Treasury statement27 June 2018

Approach to the implementation period – assumption that firms will be able to trade on the same terms as they do now until December 2020 and must also comply with any new EU legislation which comes into effect during that period.

Bank of England statement27 June 2018

Confirms they will soon consult on proposed changes to onshored Binding Technical Standards (BTS) and rules in the autumn. These changes will largely come into effect on 29 March 2019 if there’s no implementation period in place. It does not expect firms to have to prepare to implement these changes now, as it will allow regulators to use transitional relief.

FCA statement 27 June 2018

Later in 2018 FCA will amend the Handbook and onshored BTS – general approach is that EU member states will be treated as third countries. Handbook changes will be limited so it remains functional after Brexit. There will be no broader policy changes. They plan to consult on the temporary permissions regime. They will also publish information for EU entities that do business in the UK without passporting rights.

Brexit updates from November:

PRA updates Brexit consultation paper on changes to Rulebook and onshored BTS CP26/18 02.11.18

Brexit updates from October:

HMT publishes Draft Payment Accounts (Amendment) (EU Exit) Regulations 2018: Brexit SI Draft SI

Memo

31.10.18
HMT publishes Draft statutory instruments for EuVECA and EuSEF Regulations: Brexit SI Draft SI

Memo

31.10.18
HMT publishes draft Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2018: Brexit SI Draft SI

Memo

31.10.18
FMLC report on legal uncertainty arising in context of draft Brexit Bank Recovery and Resolution Regulations Report 26.10.18
Brexit: Department for International Trade gives update on withdrawal preparations Letter 25.10.18
BoE and PRA consult on Brexit package of measures on changes to binding technical standards, FMI rules and PRA Rulebook CP25/18

BoE CP resolution statements

CP26/18

BoE CP FMI rules

25.10.18
Bank and PRA issue Dear CEO letters on EU withdrawal Letter to CSDs

Letter to CCPs

Letter to PRA firms

25.10.18
HMT published explanatory note for draft Financial Conglomerates and Other Financial Groups (Amendment) (EU Exit) Regulations 2018: Brexit SI Note 23.10.18
HMT publishes explanatory note for draft Ring-Fenced Bodies (Amendment) (EU Exit) Regulations 2018: Brexit SI Note 23.10.18
HMT publishes Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc, and Transitional Provision) (EU Exit) Regulations 2018: Brexit SI SI

Memo

23.10.18
HMT publishes Draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018: Brexit SI SI

Memo

23.10.18
Association for Financial Markets in Europe (AFME) calls on authorities to urgently address Brexit cliff edge risks for financial services sector Press release 22.10.18
FCA draft application forms for trade repository registration post-Brexit Webpage 22.10.18
UK Finance to create new financial services cyber collaboration centre Speech 18.10.18
BoE confirms it will provide Treasury Committee with analysis for different Brexit scenarios Letter 17.10.18
No-deal Brexit: Consumer rights if there’s no Brexit deal technical notice Notice 17.10.18
Brexit – FCO technical notice on sanctions policy Webpage

Guidance

15.10.18
European Parliament Brexit Co-ordinator clarifies impact of Brexit on existing contracts Letter 15.10.18
Draft Consumer Protection (Enforcement) (Amendment etc.) (EU Exit) Regulations 2018: Brexit SI Draft SI

Memo

11.10.18
Treasury Committee announces expectations on timing and content of FCA and BoE analysis on impact of Brexit Letter

Letter

11.10.18
UK Finance Brexit quick brief on equivalence in a future EU-UK trade framework for financial services Brief 11.10.18
First FCA consultation on proposed Brexit changes to Handbook and binding technical standards (BTS) CP18/28 10.10.18
FCA webpage on temporary authorisation regime for data reporting services providers DRSPs after Brexit Webpage 10.10.18
FCA webpages on registrations for UK credit rating agencies (CRAs) and trade repositories (TRs) after Brexit CRA webpage

TR webpage

10.10.18
Draft SIs laid before parliament:

  • Deposit Guarantee Scheme and Miscellaneous Provisions regulation
  • Short Selling regulation
  • Statutory instruments for payment services, e-money and SEPA regulation
  • Credit transfers and direct debit in Euro regulation
  • Markets in Financial Instruments Regulations
  • Bank Recovery and Resolution and Miscellaneous Provisions Regulations
  • The Financial Regulators’ Powers Regulations
  • Competition Regulations
  • Central Securities Depositories regulations
Webpage 10.10.18
Brexit – International Swaps and Derivatives Association (ISDA) report on the impact on OTC derivatives Press release 10.10.18
HM Treasury approach to regulations relating to the ESAs and ESRB following Brexit Document 10.10.18
Draft Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018 published Draft SI

Memo

10.10.18
HMT: Draft Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018: Brexit SI Draft

Note

09.10.18
HMT: Draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018: Brexit SI Draft

Note

09.10.18
HMT: Draft Collective Investment Schemes (Amendment etc) (EU Exit) Regulations 2018: Brexit SI Draft

Note

09.10.18
HMT: Draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018: Brexit SI Draft

Note

08.10.18
HMT: Draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018: Brexit SI Draft

Note

08.10.18
ESMA speech on MiFID II implementation and Brexit Speech 03.10.18
Consumer Credit (Amendment) (EU Exit) Regulations 2018: Brexit SI SI 2018/1038

Memo

02.10.18
Friendly Societies (Amendment) (EU Exit) Regulations 2018 made: Brexit SI SI 2018/1039

Memo

02.10.18
ESMA letter to European Commission on MiFID II and MiFIR third-country regimes (Brexit) Letter 01.10.18

Brexit updates from September:

Draft Statutory Instruments for payment services, e-money and SEPA Regulation Webpage 05.09.18
European Parliament provisional resolution on relationships between the EU and third countries – financial services and supervision Provisional resolution 11.09.18
Draft EEA Passport Rights (EU Exit) Regulations published Draft SI 05.09.18

Brexit updates from August:

Financial Markets Law Committee (FMLC) report on the uncertainty of financial contracts after Brexit Report 07.08.18
FCA “Dear CEO” letter on cross-border booking arrangements post Brexit Letter 09.08.18
UK Government publishes UK-EU partnership financial services Brexit Framework Framework 21.08.18
HMT guidance on financial services in the event of Brexit “no deal” Guidance

Webpage

24.08.18
European Parliament resolution regarding equivalence of financial services sector of third countries         Report 30.08.18

 

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