The Financial Conduct Authority (FCA) has today set out how it would use the temporary transitional power in the event the UK leaves the EU without an agreement. The Treasury has put forward draft legislation that would temporarily empower UK regulators to make transitional provisions if the UK leaves the EU without a withdrawal agreement. This is intended to minimise the disruption for firms and other regulated entities in this scenario.
The temporary transitional power would give the FCA the ability to delay or phase in changes to regulatory requirements made under the EU (Withdrawal) Act 2018 (the legislation that has enabled the 'onshoring' of EU legislation and rules into the UK rulebook) for a maximum of 2 years from exit.
The FCA intends to make use of this power to ensure that firms and other regulated persons can generally continue to comply with their regulatory obligations as they did before exit. This will enable firms to adjust to post-exit requirements in an orderly way.
There will be some areas where it would not be consistent with the FCA’s statutory objectives to grant transitional relief using the temporary transitional power. In these areas only, firms and other regulated persons as identified below should begin preparing to comply with the changed obligations now, if there is no implementation period.
Nausicaa Delfas, Executive Director of International at the Financial Conduct Authority said:
“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 following firms or persons should begin to prepare to comply with changes now:
- Firms subject to the MiFID II transaction reporting regime, and connected persons (for example approved reporting mechanisms).
- Firms subject to reporting obligations under European Market Infrastructure Regulations (EMIR).
- EEA Issuers that have securities traded or admitted to trading on UK markets.
- Investment firms subject to the Bank Recovery and Resolution Directive (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.
In June 2018, the FCA set out its approach to preparing for all Brexit scenarios, including if there is no withdrawal agreement and no implementation period.
We have been consulting on changes to the FCA Handbook and binding technical standards for the same reason. We have not been proposing policy changes, other than where appropriate to reflect the UK’s new position outside the EU.
In addition, existing transitional arrangements such as, for example, the temporary permissions regime (TPR) will operate from exit day. Firms and other regulated persons wishing to use these regimes should ensure they have completed the necessary steps by exit day to enter the relevant regime.
The FCA will publish more information on how firms should comply with post-exit rules before exit-day.
Notes to editors
- FCA Statement: Brexit – what we expect firms and other regulated persons to do now.
- More details about MiFID transaction reporting and our new IT system for validation and publication of instrument reference data, FCA Financial Instrument Reference Data System (FIRDS) including our project timetables and the industry testing schedule.
- Statutory Instrument: The Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019
- On 25 October 2018, the UK Parliament approved legislation (PDF) delegating power to regulators to address deficiencies arising from the UK’s withdrawal from the EU.
- On 6 November 2018, the UK Parliament approved legislation setting out the temporary permissions regime for passporting firms under Schedules 3 and treaty firms under schedule 4 to FSMA. Parliament has also approved legislation providing similar schemes for institutions passporting under the Electronic Money Directive or Payment Services Directive 2. Under the legislation relevant firms which notify before UK withdrawal of their wish to continue to do business in the UK, will be deemed to have temporary UK authorisation. A similar regime will apply to the UK recognition of investment funds.
- Firms can find out if they use a passport by checking the Financial Services Register.
- The FCA has set out its approach to transition regimes, alongside the temporary permissions regime:
- Temporary permissions regime
- Registering as a credit rating agency
- Registering as a trade repository
- Temporary authorisation regime for data reporting services providers (DRSPs)
- On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
- The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
- Find out more information about the FCA.