Brexit and Financial Services Firms – an update

HM Treasury and the FCA have both published updates on the Brexit process in the last few days. We set out below a summary of the issues for financial services firms.

HM Treasury and the FCA are continuing to prepare for a number of scenarios for Brexit including the following:

1. where the UK leaves the EU without any withdrawal agreement or implementation period having been agreed, and
2. where the UK leaves the EU with an agreed withdrawal agreement and implementation period.

Scenario 1 -  No implementation period

To prepare for the first scenario, HM Treasury have announced its approach to amending current financial services legislation through the European Union (Withdrawal) Act (“EUWA”)  (see their paper here) so as to ensure that on the 29 March 2019 if no implementation period is in place there will continue to be a fully functioning regulatory regime. The EUWA will convert existing EU law (including EU regulations) into UK law on exit and will preserve UK laws implementing EU directives. The FCA will be responsible for amending and maintaining the EU binding technical standards that sit beneath the primary legislation and provide the technical detail as to how the legislative requirements are to be met. The FCA’s statement on its role in the Brexit preparations can be found here. The FCA will also be responsible for amending the FCA’s Handbook of Rules and Guidance to ensure it is consistent with these changes. The FCA will consult on these changes in the autumn. The FCA also plans to consult on the rules which will apply to firms in the temporary permissions regime. For our previous note on this, please click here.

After Brexit, EU member states will be treated as third countries by the UK although HM Treasury has stated that there will be instances where they deviate from this general position. In turn, the UK will be treated by the EU as a third country.

Functions that are currently carried out by EU authorities will be transferred to the FCA such as the supervision of trade repositories and credit ratings agencies whilst the supervision powers over non-UK central counterparties and central securities depositories will be transferred to the Bank of England.

Scenario 2 – Implementation period agreed

With respect to the second scenario, the UK and the EU agreed in March this year on the terms of an implementation period following the UK’s withdrawal which would operate until the end of December 2020. During such an implementation period, EU law would remain in force in the UK and firms could continue to make use of the passporting rights between the UK and the EEA. Firms would need to continue with implementation plans for EU laws due to come into effect before the end of December 2020. However such an implementation period is still subject to further negotiations and is not guaranteed. Nevertheless, HM Treasury states clearly that firms should continue to plan on the assumption that an implementation period will be in place.

Preparation is key

The UK Government seems confident that the implementation period will be in place by 29 March 2019 however it is clear that they and the FCA are preparing for the scenario where such an implementation period is not agreed. Clearly, even if an implementation period is agreed, the end of December 2020 is likely to come around quickly so the more firms prepare for the 29 March 2019 deadline, the better placed they will be for December 2020 if an implementation period is agreed.

This article was written by Vanessa Walters. To ask any questions, or for any further information on how your firm should be planning for Brexit, please contact Vanessa on +44 (0)20 7427 6706 or at vanessa.walters@crsblaw.com.