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.
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 a no-deal scenario, 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 following 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 customers to which they are entitled.
You should understand how your outsourcing and third-party relationships are affected by Brexit and the associated operational risk to your firm and potential harm to consumers that may result from any change or disruption to the outsourced services they provide.
For example, whether you outsource or delegate to an EEA firm or if an EEA firm outsources or delegates to you.
You should engage with your third-party service providers to understand their Brexit contingency planning and any changes they intend to make that may affect your business. You should have a clear understanding of your firm’s dependencies on outsourcing or third-party service providers and whether they will be able to continue providing their services after exit day.
You should consider whether you outsource or delegate to an EEA firm or if an EEA firm outsources or delegates to you. You may need to review outsourcing arrangements to ensure these will remain legally valid.
For example, if your firm outsources to a third-party data centre located in the EEA, you should review the contract(s) to establish whether any changes are necessary, considering any GDPR implications, and then make any updates required.
The following questions may help you decide how Brexit might affect these arrangements. Please note that this is an indicative list.
- Have you identified your key third party service providers?
- Have you considered if these service providers will be materially affected by Brexit?
- Have you discussed your plans for Brexit with your key third party providers and their respective plans, to ensure that your plans can be met by the service provider?
- In your preparations for Brexit, have you considered the potential contention for change management resources at critical service providers (arising from more than one client making increased demands upon the service provider)?
Users of credit ratings
In a no deal scenario, we will become the UK regulator of credit rating agencies (CRAs). This means that, after Brexit, CRAs wishing to issue or endorse credit ratings in the UK for regulatory purposes will need to be registered or certified 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 exit day. You may wish to contact the relevant CRAs whose ratings you use in order to understand the systems changes they are planning to make.
Engaging with non-UK regulators
As UK-based firms prepare for Brexit, some will be in discussion with our European counterparts. Similarly, European regulators are making their own preparations and are contacting firms directly about their intentions. In the same way that firms deal with us, firms should act lawfully and respond to our counterpart regulators as best they can and in a timely manner.
Information for your sector
- 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