The UK left the EU on 31 January 2020 with a Withdrawal Agreement and entered a transition period which is due to operate until 31 December 2020. Firms should make sure they have assessed the impact on them and their customers, and have plans in place to ensure they are ready. Here we set out some considerations to help firms consider if or how they will be affected and what action they may need to take.
On this page:
- issues for all firms to be aware of
- considerations for UK firms
- considerations for EEA firms conducting business in the UK
- next steps
- further information
- telephone line
How firms are affected at the end of the transition period will depend on a number of factors, including the nature of their business, the location of their customers, and any agreements or decisions about the future UK-EU relationship, for example whether a free trade agreement is reached or equivalence determinations are made.
For now, we expect firms to continue to consider the implications of a range of scenarios, including the possibility that the UK and the EU do not conclude a free trade agreement or make any equivalence determinations before the end of the transition period.
All firms should consider the following issues and understand the impact they have on their firm.
Passporting allows firms authorised in an EEA state to conduct business within other EEA states based on their ‘home’ member state authorisation. Passporting between the UK and EEA states will end at the end of the transition period.
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
You should review the further information set out below on considerations for UK firms and considerations for EEA firms conducting business in the UK.
Changes to legislation in the UK
The European Union (Withdrawal) Act 2018 will convert into UK law existing EU legislation which has direct effect in the UK at the end of the transition period 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. It has used this power to make numerous statutory instruments which amend retained EU financial services legislation. The Government’s intention is that the same rules and laws will apply after the end of the transition period as before, as far as possible, but with the necessary amendments to reflect the UK’s position outside the EU.
The Government has conferred on the FCA (and, where relevant, the Bank of England and the Prudential Regulation Authority) responsibility for amending and maintaining certain EU-binding technical standards which become UK law at the end of the transition period. These technical standards specify detailed requirements for the purposes of various EU regulations and directives.
We are also amending our Handbook to ensure it is consistent with changes the Government is making to retained EU law and so that it still works effectively when the transition period ends.
For further information, read our statement on changes to UK legislation.
Temporary transitional power (TTP)
To help firms adapt to their new requirements, the Treasury has given UK financial regulators the power to make transitional provisions in relation to financial services legislation for a temporary period. This is known as the Temporary Transitional Power (TTP).
We intend to apply the TTP on a broad basis from the end of the transition period until 31 March 2022. This means firms and other regulated persons can continue to comply with their existing requirements for a limited period. However, there are some areas where the TTP will not apply and where firms will need to start preparing now to comply with these obligations from 31 December 2020.
Users of credit ratings
At the end of the transition period, the FCA will become the UK regulator of UK-registered and certified credit rating agencies (CRAs). This means that after the end of the transition period, any UK legal entity that wishes to issue credit ratings publicly or by subscription will need to be registered or certified as a CRA with us.
These CRAs will make system changes to flag ratings that are available for regulatory use in the UK. Firms using credit ratings for regulatory purposes should therefore also ensure they are operationally ready to use credit ratings issued or endorsed by FCA-registered CRAs after the end of the transition period. You may wish to contact the relevant CRAs whose ratings you use in order to understand the systems changes they are planning to make.
You need to consider whether your firm transfers personal data between the UK and the EEA.
The UK Government has legislated so that UK firms will continue to be able to lawfully send personal data from the UK to the EEA and 13 other countries deemed by the EU as ensuring an adequate level of protection of personal data. The EU is aiming to assess the UK data protection regime before the end of the transition period. For now, that means the position for transfers of personal data from the EEA to the UK is not clear.
When contingency planning, you should 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. In particular, you should plan for the potential scenario that the EU does not find the UK regime adequate. The Information Commissioner’s Office (ICO) is the regulator for data protection issues in the UK. Read the ICO's information on data protection and Brexit. You should also consider taking legal advice if you believe that you might be affected.
Firms must pay attention to their customers’ information needs and communicate with them in a way which is clear, fair and not misleading (Principle 7) and our Handbook rules.
We expect you to contact any of your customers who may be affected by the end of the transition period. We have made this clear in information we have published for consumers on how Brexit might affect them.
You should be able to show you have considered how the end of the transition period, and your plans for it, may affect your customers. You should keep in mind that different categories of customers might be affected in different ways, as is set out in our guidance in PRIN 1.2. For example, customers based in the EEA (including UK expats) may be more affected. You should contact each group of customers impacted by the end of the transition period, to explain clearly how they are or will be affected.
As well as offering information directly to your customers, you should consider what information you make available more widely, such as on your website. This includes preparing for the possibility that you may start to receive a significant increase in consumer queries.
You must communicate with your customers in good time – usually, the earlier the better. You must also ensure you communicate clearly to your customers, taking care to avoid confusion with multiple messages which could change over time. The continued uncertainty around arrangements at the end of the transition period may cause tension between the timeliness and clarity of your communications.
You should start with considering what information consumers need to know and when, and work back from there. If customers need to act then you must provide the information required in a realistic time for them to make these decisions. If you have a credible plan to maintain continuity in any situation then you may have more time to inform your customers of your plans.
Nevertheless, it is important you have answers ready to reassure customers and ensure you are able to address customer queries accurately, fairly, clearly and promptly.
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.
We have also published specific information for these sectors:
- General insurers and intermediaries in the UK
- Life insurers in the UK about pensions and retirement income
- Participants in the wholesale markets operating in the UK (including wholesale banks, wholesale markets and asset managers)
- Retail investments firms in the UK
- Banking and payment sectors in the UK
For information on Brexit from EEA financial regulators, see our list of dedicated websites.
UK authorities have taken a number of steps to limit the impact of the end of passporting on financial products and services provided to UK-based customers from EEA firms. This includes introducing the temporary permissions regime (TPR) and the financial services contracts regime (FSCR).
Where EEA firms do not plan to take advantage of these regimes to continue to provide services to customers and are planning to stop servicing customers resident in the UK, they should notify us of their plans by contacting us directly or through their usual supervisory contacts. We expect financial services firms to treat customers fairly, including when considering what notice to provide and what support customers need to make alternative arrangements.
Temporary permissions regime
The TPR will take effect at the end of the transition period. This will allow EEA-based firms passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for a limited period, while they seek full FCA authorisation, if required. It will also allow EEA-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK.
Financial services contracts regime
Alongside the TPR, the Government has created the FSCR. This will allow, for a limited period of time, EEA passporting firms that do not enter the TPR to continue to service UK contracts entered into prior to the end of the transition period (or prior to when they enter FSCR) in order to conduct an orderly exit from the UK market once the transition period has ended.
If you conclude that you or your customers may be affected by the end of the transition period, you should:
- work out and plan for implementation of 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
- continue to consider the implications of a range of scenarios, including the possibility that the UK and the EU do not conclude a free trade agreement or make any equivalence determinations before the end of the transition 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.
We have agreed Memoranda of Understanding (MoUs) with ESMA and EU regulators covering cooperation and exchange of information. These MoUs will come into effect at the end of the transition period, which is set to expire on 31 December 2020.
If you need help, call our dedicated telephone line on 0800 048 4255. The line is open Monday, Tuesday, Wednesday and Friday 9am to 5pm, and Thursday 9.45am to 5pm.
28/07/2020: Information added MoUs with ESMA and EU regulators