Financial Conduct Authority prepares for a no-deal Brexit - just as Europe ups the ante

The Financial Conduct Authority (FCA) has published two consultation papers setting out and seeking comments on its proposed contingency plans in the event of a ‘hard’ Brexit on 29 March 2019 – an exit without a transition period after that date.

At the ‘point of exit’ from the European Union, the FCA will have responsibility for setting the standards and rules applying to all UK regulated financial concerns – including: Credit Rating Agencies, Trade Repositories and Data Reporting Services Providers. 

The UK financial sector, today, operates within a harmonised European-wide framework.

The two consultation papers focus on:

Amendments to the FCA Handbook and Binding Technical Standards; and

Temporary Permissions Regime, which will allow EEA firms and funds passporting into the UK to continue operating here for a limited period after Brexit while seeking full UK authorisation.

The FCA website states that it is working to ensure “as smooth a transition as possible as the UK prepares to leave the European Union and these consultations are an important part of this work.”

Nausicaa Delfas, Executive Director at the FCA commented: “The FCA is planning to be ready for a range of scenarios.  We are publishing two consultation papers to ensure that in the event the UK leaves the EU in March 2019 without an implementation period, we have a robust regulatory regime from day one and to ensure a smooth transition for EEA firms and funds currently passporting into the UK.  This is consistent with our aim to provide certainty and confidence for firms operating in the UK.  We welcome engagement from across the sector, as we continue with our preparations for Brexit.”

Brexit Partners believe that business and commerce now need to carefully weigh the odds that the UK will leave the EU without a deal – and plan accordingly.  All the signs are that the parties to the negotiations are nowhere close to agreement.  Yesterday - 15 October - Prime Minister, Theresa May, reaffirmed her belief that: “no-deal is better than a bad deal.”  This came just 24 hours after an unscheduled Sunday meeting in Brussels between UK and EU Chief negotiators, Dominic Raab and Michel Barnier – that started full of optimism, ended in total impasse.

And her comments came just 48 hours ahead of the scheduled date to present a working draft Agreement to the 27 other EU Heads of State at a summit.  This day was scheduled in the calendar of the journey to Brexit over a year ago – and it is the last day to reach an Agreement that allows UK and EU governments and businesses the opportunity to complete the complex processes of approvals - and to make the detailed preparations needed for a smooth exit from Europe on 29 March 2019.

In the lead up to Wednesday’s summit Donald Tusk, President of the European Council, has piled further pressure on the UK saying today that: ” Unfortunately the report on the state of the negotiations that I got from Michel Barnier - as well as yesterday’s debate in the House of Commons - gives me no grounds for optimism before tomorrow’s European council on Brexit…”

“…tomorrow I am going to ask Prime Minister May whether she has concrete proposals on how to break the impasse.  Only such proposals can determine if a breakthrough is possible.”

He added even more pressure saying that: “while working on a Brexit deal, we also need to make sure that we are prepared in case an agreement is not possible or in case it is rejected.  Therefore, tomorrow the leaders will discuss how to step up our preparations for a no deal scenario.”


Amendments to Handbook and Binding Technical Standards (BTS)

Parliament has passed the European Union (Withdrawal) Act 2018 to prepare the UK’s legal framework for exiting the EU.  It will convert existing directly applicable EU law at the point of exit into UK law, preserve existing UK laws which implement EU obligations, and give the Government powers to amend that law so it functions effectively when the UK leaves the EU.  As part of these preparations, the Treasury intends to give financial services regulators, including the FCA, responsibility for amending EU binding technical standards (BTS), which are detailed EU rules that apply until exit day.

The majority of the changes are consequential to those proposed by the Government under the European Union (Withdrawal) Act 2018. For example, changes include removing references to EU institutions, such as the European Commission or the European Supervisory Authorities, which will be replaced with the relevant UK equivalent.  In a small number of cases, the FCA is proposing other types of changes that reflect the UK’s new position outside of the EU.  Feedback is invited on the approach taken to all of the amendments.  The FCA is not proposing policy changes unrelated to Brexit.

Temporary Permissions Regime

The FCA is also consulting on its proposals for the Temporary Permissions Regime.  At present, certain European Economic Area (EEA) firms can provide financial services in or into the UK, and EEA investment funds can be marketed in the UK, through a passport. The paper sets out how EEA firms and investment funds can continue to carry on regulated business in or into the UK for a limited period after Brexit while seeking full authorisation in the UK. The regime will only be available from 29 March 2019 if the UK leaves the EU without an implementation period.

The consultation paper sets out details of how the FCA expects the regime to work in practice, how firms and investment funds can enter into it, how long it will operate for, and the rules it proposes that should apply to firms and investment funds while they are part of it.

The FCA has taken a proportionate approach to enable firms to comply with its requirements from day one.  Overall, the FCA’s aim is to preserve existing arrangements as far as possible for both firms and consumers. In some cases, firms may be required to join additional schemes run by UK institutions to protect UK consumers, for example the Financial Services Compensation Scheme (FSCS).

This consultation paper is relevant to those EEA firms and investment funds currently doing business in or into the UK, or being marketed in the UK, through a passport.

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John ShuttleworthComment