The Financial Conduct Authority has this month launched an updated version of their “Brexit” website, which provides information to help FCA authorised firms prepare for the UK’s imminent departure from Europe.
The intention is to explain the regulatory position to firms and point out what they need to consider now so that they are ready from the 31 December 2020 (the end of the Transition Period).
The FCA states: “During the transition period, EU law continues to apply in the UK. New EU legislation that takes effect before the end of the transition period will also apply to the UK.
The UK and the EU have indicated, in a Political Declaration, that they intend to reach agreement on the future relationship between the UK and the EU by the end of 2020. The UK government has indicated it does not intend to extend the transition period.”
Further, the FCA confirms that they expect firms to be considering now the implications of a range of Brexit scenarios, including the possibility that the UK and EU do not conclude a free trade agreement or make equivalence decisions before the end of the Transition Period. The starting point is for firms to assess whether they have any connection to the EU, such as EU based customers, investors or counterparties, if they are members of EU based market infrastructure or even if they transfer personal data to the EU.
The FCA then requests firms to examine a number of key areas and make plans to ensure their businesses are addressing these, such as the changes that will be made to UK legislation (and updating contracts), outsourcing, data sharing and how they will communicate with their customers going forward.
One key area is that of passporting, which essentially allows EU regulated firms to establish a presence or provide regulated services cross-border in other EU countries without having to make detailed applications to each individual EU regulator. Planning around the potential loss of the passport will be crucial to the business operations of some firms.
The FCA makes clear that: “Passporting will continue during the transition period.” However…”firms should not expect current passporting arrangements to continue after the transition period ends. This means that you should anticipate a range of possible scenarios for the end of the transition period, including that the activities you conduct might not be covered by arrangements agreed between the UK and the EU.
You will need to consider how the end of the transition period will affect you and your customers, and what action you may need to take to be ready for 1 January 2021. We will provide further information as and when there are material developments, including about what we expect from firms.”
Along these lines, the FCA makes clear that firms should be contacting EU regulators where they need to in order to ensure they are ready and able to provide services to EU customers when the Transition Period ends.
The FCA highlights that: “We are clear that firms’ decisions need to be guided by what is the right outcome for your customers. You must treat customers fairly, irrespective of where they are based. In many cases, it would be a poor outcome for customers if you simply stop servicing them suddenly. There will be particular situations where significant harm would result – for example, if you withheld payments to which customers are entitled.”
What is of course a difficulty for firms is that the arrangements as to passporting have yet to be agreed on at Government level. A significant number of firms have already taken steps to ensure they will be ready at the end of the Transition Period, such as opening a European based office which is approved directly by the local regulator rather than passported in.
We recommend that regulated firms keep close watch over the FCA’s Brexit portal as information on updates is likely to be posted here regularly. For example, the FCA has very recently updated the Brexit website to confirm that they have agreed Memoranda of Understanding with ESMA and EU regulators covering cooperation and exchange of information in the event the UK left the EU without a withdrawal agreement.
The takeaway for firms is that they must now take steps to ensure they are able to continue to service their customers without consumer detriment at the end of the Transition Period, despite there being little clarity around what the position will look like at this stage.