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.
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:
- What the future relationship between the EU and UK will look like;
- 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.
What do we know so far?
The EU (Withdrawal) Bill has now received Royal Assent. It is referred to as the EUWA. This will:
- repeal the European Communities Act 1972 on exit day;
- transfer EU law into UK domestic legislation, where appropriate;
- create powers to makes secondary legislation, where necessary, to correct existing laws and implement a withdrawal agreement (this is expected to involved 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 Treasury statement
HM Treasury have set out their approach to the implementation period which it expects to be in place between 29 March 2019 and 31 December 2020. Firms should plan on the assumption that the implementation period will be put in place. This means 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.
This includes UK market infrastructures that are authorised under the existing EU framework, such as CCPs, who will be able to continue to provide services to the EU. EU and third country financial market infrastructures that have an existing authorisation or recognition under EU law will also be able to continue operating without disruption during this period. They have also explained that they will create a temporary permissions regime which, if necessary, would allow EEA firms to continue operating in the UK for a time limited period after the UK has left the EU if no deal has been reached. HMT intend to start laying Statutory Instruments shortly.
Bank of England statement
HMT will delegated powers to the financial services regulators to make any required changes to onshored Binding Technical Standards (BTS) and maintain them thereafter. In a statement aimed at PRA authorised firms and financial market infrastructures, the Bank of England confirm that they will consult on proposed changes to onshored BTS and rules in the Autumn. These changes will largely come into effect on 29 March 2019 if there is 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.
In its latest statement the FCA announced the following:
- Later in 2018 it will make amendments to the Handbook and to onshored BTS – it will follow the general approach that EU member states will be treated as third countries;
- It intends to limit Handbook changes to ensure it remains functional after Brexit and will not be making any broader policy changes;
- It will consult on rules that will apply to firms in the temporary permissions regime; and
- It will publish information for EU entities that currently access or do business in the UK without passporting rights.
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 start planning for the range of possible outcomes which could come their way. Business-critical decisions need to be taken and plans drawn up. Keep an eye on the action the regulators are taking and stay on the front foot with them.