With the United Kingdom due to leave the European Union on 29th March 2019 and no deal presently in place to govern the transition period which is due run to 31st December 2020, firms and regulated persons should ensure that they have contingencies in place to ensure that their operations are compliant in the event of a no-deal Brexit.
To assist the regulated community the Financial Conduct Authority (FCA) has outlined how it intends to use the transitional powers which would be granted under the draft Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019. The FCA’s focus will be on minimising disruption within the financial services sector and ensuring an orderly transition. As such the FCA has indicated its intention to use its proposed temporary transitional powers to delay many of the regulatory changes which would have otherwise been required under the EU (Withdrawal) Act 2018.
However, it is important to note that the FCA has made it clear that a number of key areas will not be dealt with in this way and as such firms should be taking positive steps now to ensure that a no-deal scenario does not disrupt their operations.
Nausicaa Delfas, Executive Director, International, at the FCA has stated as follows:
“The temporary transitional power is an important part of our contingency planning. In the event that the UK leaves the EU without an agreement, it gives us the flexibility to allow firms and other regulated persons to phase in the regulatory changes that would need to be made as a result of 'onshored' EU legislation. This will give firms certainty, ensure continuity, and reduce the risk of disruption.
“There are some areas such as reporting rules under MiFID II, where it would not be appropriate to provide a phase-in, as receiving these reports is crucial to our ability to ensure market oversight and the integrity of financial markets. In these areas only, we expect firms and other regulated persons to begin preparing to comply with the changes now.”
The FCA has issued guidance indicating what is expected of firms and regulated persons as part of their preparations for Brexit and this document lists the various areas where the proposed transitional powers would not be used. These are as follows:
- Firms subject to the MiFID II transaction reporting regime, and connected persons (for example approved reporting mechanisms)
- Firms subject to reporting obligations under EMIR
- EEA Issuers that have securities traded or admitted to trading on UK markets
- Investment firms subject to the BRRD and that have liabilities governed by the law of an EEA State
- EEA firms intending to use the market-making exemption under the Short Selling Regulation
- Firms intending to use credit ratings issued or endorsed by FCA-registered credit ratings agencies after exit day
- UK originators, sponsors, or securitisation special purpose entities (SSPEs) of securitisations they wish to be considered simple, transparent, and standardised (STS) under the Securitisation Regulation
Clearly the political situation is presently fast-moving and subject to change. At the time of writing it appears likely that some form of compromised deal will be approved by Parliament ahead of the deadline. However, this is by no means guaranteed and there remains a significant risk that the UK will leave the EU without a transition deal in place. As such, firms operating in the above areas should ensure that they have devised updated systems and arrangements which can be implemented in the event of a no-deal scenario.
If you require advice on regulatory compliance, guidance on how the forthcoming departure from the EU is likely to affect your firm’s operations or assistance with notifications under the temporary permissions regime, please contact a member of our specialist team on 0175 321 6399 or complete our online enquiry form.