As the UK prepares to leave the EU, regulated firms should consider if or how they will be affected and what action they may need to take. As more information about what Brexit will mean for financial services emerges, firms need to make sure they understand the implications and plan accordingly.
How Brexit may affect your firm
UK-based firms that only do business in the UK may be affected less directly than others or not affected at all. However, firms which carry out business between the UK and the European Economic Area (EEA) – whether through a passport or directly under EU legislation - will be affected.
Passporting allows firms authorised in an EEA state to conduct business within other EEA states based on their ‘home’ member state authorisation. After Brexit, and any implementation period, passporting in its current form will end for the financial firms currently using it in the UK. This may change depending on any future agreement with the EU.
This will affect:
- firms and funds based in the UK that conduct business in the EEA
- firms and funds based in the EEA that carry out certain types of business in the UK
On this page:
- Considerations for UK firms
- Considerations for EEA firms conducting business in the UK
- Issues to be aware of
- Next steps
- Further information
UK-based firms that only do business in the UK may be affected less directly than others or not affected at all. However, firms which carry out business between the UK and the European Economic Area (EEA) – whether through a passport or directly under EU legislation - will be affected. You should have plans in place now to address any risks for your firm.
If your firm has decided to make changes to how you operate, it is important that you ensure execution is managed appropriately. We look to the Board and executive management at firms to ensure this happens. We expect firms to focus on ensuring they make the necessary changes required to avoid harm to those clients who are impacted. Firms should only make changes where they are in customers’ best interests, avoiding making changes for customers who are not impacted and whose existing arrangements would be better left in place.
The following questions may help you decide if you conduct business in the EEA or if Brexit might affect your business. They are not a full checklist.
- Do you currently provide any regulated products or services to customers resident in the EEA? For example, you might provide financial advice to EEA based customers. Or you might have insurance contracts either with EEA based customers or which cover risks located in the EEA which require regulatory permission in that country in order to be serviced.
- Do you have customers or counterparties based in the EEA, including UK expatriates now based in an EEA country?
- Are you marketing financial products in the EEA? This includes products marketed on a website aimed at consumers in the EEA.
- Do you have agents in the EEA or interact with any intermediary service providers in the EEA? For example, you may use an insurance intermediary to distribute products into the EEA.
- Does your firm transfer personal data between the UK and the EEA or vice versa?
- Does your firm have membership of any market infrastructure (trading venues, clearing house, settlement facility) based in the EEA?
- Are you part of a wider corporate group based in the EEA, or does your firm receive any funding from an entity in the EEA?
- Do you outsource or delegate to an EEA firm or does an EEA firm outsource or delegate to you?
- Are you party to legal contracts which refer to EU law?
If any of these apply to you - or you currently conduct business in the EEA in any other way - then you should understand on what legal basis that business occurs, whether it can continue on that basis or by other means after Brexit or whether your firm will need additional regulatory permissions. If you aren’t doing business in EEA markets now, you should consider whether you may in future, either before or after the UK exits the EU.
If your business takes place based on a passport then you will need to consider if and on what basis it may be possible to continue after Brexit. You can find out if your firm uses a passport by checking the Financial Services Register.
Not all these factors will automatically mean your business is affected. There are other ways firms can access the EEA which may not be affected by Brexit, although these will depend on the specific firm, type of activity and the exemption or local permission in question. These include:
- Permission under local law or based on rules of a local financial market infrastructure.
- Local exemptions in an individual EU country. An example of this is ‘reverse solicitation’, where the client initiates the provision of the service on their own initiative, and you do not promote or advertise services.
As we say above, Brexit will result in the loss of passporting for UK firms doing business in the EEA and so you should consider what permissions your firm might need to continue to do business in the EEA, and ensure you have appropriate contingency plans to achieve this.
In addition, in the case of a no deal exit in March 2019, the loss of passporting could create a “cliff edge” for UK firms who need to carry on servicing customers under existing contracts. Whether you need regulatory permissions in the local EEA jurisdiction to continue to service customers will depend on the activity your firm is carrying on, the local law and the approach of the local authorities in that jurisdiction.
You will need to decide on your approach to servicing customers under existing contracts, taking the steps available to you to continue to service customers in accordance with local law and local regulators’ expectations.
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 those customers are based. In many cases, it would be a poor outcome for the consumer for you simply to stop servicing them. There will be particular situations where significant consumer harm would result if you stopped servicing the consumer: for example for you to withhold payments to consumers to which they are entitled.
Temporary permissions regime
Many EEA firms conduct regulated activities in the UK. In December 2017, the Treasury announced that, if necessary, the Government would introduce a temporary permissions regime for inbound passporting EEA firms and funds.
If there is not an implementation period and the passporting regime falls away abruptly when the UK leaves the EU, the temporary permissions regime will provide a backstop. It will allow inbound firms to continue operating in the UK within the scope of their current permissions for a limited period after exit day, while seeking full UK authorisation. It will also allow funds with a passport to continue temporarily marketing in the UK.
The Treasury has now published a number of pieces of legislation that will establish the temporary permissions regime and other transitional arrangements for financial services firms and funds and other types of entities. We have also published a consultation paper which sets out more detail on how the regime will operate – including which firms and funds will be able to use the regime and how firms and funds will need to notify us that they want to obtain a temporary permission.
Firms and funds should read our temporary permissions regime webpage to find out what they should do to prepare for the regime.
The UK is due to leave the EU on 29 March 2019. Earlier this year, the UK and EU agreed the terms of an implementation period which would apply from the end of March 2019 until the end of December 2020. During this time, EU law would still apply in the UK. Firms and funds would continue to benefit from passporting between the UK and EEA. However, the implementation period is part of the withdrawal agreement, and the agreement is still subject to ratification by the UK Parliament and the European Parliament.
Read our statement on the implementation period.
Changes to legislation in the UK
We continue to prepare for a range of scenarios. This includes if the UK leaves the EU on 29 March 2019 without a withdrawal agreement and without the UK Government and the EU having ratified an implementation period.
The EU Withdrawal Act will convert existing direct EU legislation into UK law, and preserve existing UK laws which implement EU obligations. The Government has also been given powers to amend this retained EU legislation so that it works effectively when the UK leaves the EU. The Government’s intention is that the same rules and laws will apply after exit as before, as far as possible.
As part of this, we will amend and maintain EU binding technical standards, which are detailed EU rules. These rules sit underneath EU regulations and directives and give the technical detail of how firms should meet these requirements. We will also be amending our Handbook to ensure it is consistent with changes the Government is making to EU law and so it still works effectively when the UK leaves the EU.
The Treasury has said it will bring forward measures that will give us some flexibility in applying post Brexit requirements, allowing firms to transition to a new UK regulatory framework. This means we do not expect firms and other regulated entities providing services within the UK’s regulatory remit to have to prepare now to implement these post Brexit requirements.
Read our statement on changes to UK legislation.
You need to consider whether your firm transfers personal data between the UK and the EEA.
If the UK leaves the EU without a withdrawal agreement the Government has stated that the UK will continue to allow the free flow of data from the UK to the EEA after 29 March 2019. However, the position for transfers of personal data from the EEA to the UK has not been made clear.
We believe that the best solution to this issue is a central one. Timely action by UK and EU authorities is needed fully to mitigate the risks associated with transfers of personal data. However, the EU Commission has stated on 13 November 2018 that an adequacy decision of the UK data protection regime is not part of its contingency planning.
Therefore when contingency planning, you should continue to consider:
- the extent to which your business is reliant on transfers of personal data (for example because of where your data centres are located);
- what risks you may be exposed to if there is no complete central solution to allow transfer of personal data between the EEA and the UK to continue, and what steps you can take to mitigate any risks you may face.
We want you to plan appropriately for data protection risks, as it can affect your regulated business. However, the Information Commissioner’s Office (ICO) is the regulator for data protection issues in the UK. See the ICO's data protection and Brexit webpages. You should also consider taking legal advice where appropriate if you believe that you might be affected.
How customers may be affected
We expect you to contact consumers if they are affected by Brexit. We have made this clear in information we published for consumers on how Brexit might affect them.
You are required to pay attention to your clients’ information needs and communicate with them in a way which is clear, fair and not misleading (FCA principles (Principle 7) and our Handbook rules).
You should be able to demonstrate you have considered how Brexit, and your plans in relation to Brexit, may affect your clients, keeping in mind that different categories of client might be impacted in different ways, as is set out in our guidance in PRIN 1.2. You should contact each group of consumers that is impacted by Brexit to explain clearly how they are or will be affected. Your communications should be timely, taking into consideration how long your consumers may need to make any decisions.
As well as providing information directly to consumers, you should consider what information is made available for consumers to access, for example on your website. You should also make sure you can address customer queries accurately, fairly, clearly and promptly. This includes preparing for the possibility that you may start to receive a significant increase in consumer queries.
To the extent you have not already done so, you should urgently complete your assessment of the extent to which you are affected by Brexit. If you conclude that you are affected you should:
- Work out and implement the changes you might have to make to your business.
- Think about any information you will need to give to customers who might be affected by your plans and how you will provide it in a way which is clear, fair and not misleading. For example, explaining clearly to customers where a change in contractual terms might affect them.
- Continue to consider the implications of a range of possible scenarios including the potential absence of any implementation period.
You may also want to discuss the implications with the relevant EEA regulator in the countries in which you do business, your trade association or get independent legal advice for further clarification. The European Commission has published notices to financial firms highlighting these implications in more detail.
The Brexit negotiations are a matter for Government but we follow them closely and will provide further information when we can. We also encourage firms to regularly check our website for further information.