Towards end of the transition period: getting ready for a new environment

Speech delivered by Nausicaa Delfas, Executive Director of International, at the UK’s Regulatory Regime for Financial Services Summit.

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Speaker: Nausicaa Delfas, Executive Director of International
Event: UK’s Regulatory Regime for Financial Services Summit
Delivered: 12 November 2020
Note: this is the speech as drafted and may differ from delivered version


  • we should all continue to prepare ahead of the UK’s exit from the transition period, and not be complacent
  • we will ensure that our regulatory approach to financial services remains effective and appropriate now that we have left the EU; and 
  • we will build on our global role outside the EU, whilst demonstrating our continued commitment to open markets, free trade, and the highest international standards of regulation

2020 has been a significant year. On 31 January 2020, the UK left the EU. A few weeks later, impacts of the Covid-19 pandemic were felt here and across the world.

And when this year draws to a close, on 31 December 2020, at 11pm, the transition period will end, and the UK will enter into a new phase, when EU law and the rules relating to the single market will no longer apply in the UK – and this is the focus of the conference today.

The Chancellor set out his ambition for UK financial services this week, including extending its global leadership in green finance and financial technology – and in this the FCA will play an important role.

Before I come to this, I will look at the near term – preparations for the end of the transition period, which is only seven weeks away, and remaining risks. 

Preparing for the transition period

Having been a member of the EU for nearly 50 years, and having incorporated EU laws and regulations into our statutes and regulatory rule books, the UK has a regulatory regime that is the most equivalent to the EU’s in the world.

As such, agreements on mutual equivalence should clearly be possible. However, apart from a temporary decision on central counterparties, no equivalence arrangements have currently been made by the EU.

Negotiations continue between the EU and the UK, but as you know, the outcome remains uncertain. We should not assume, even if a deal is agreed, that it will mitigate outstanding risks in financial services.

We have been taking steps to prepare for all scenarios at the end of the transition period, to minimise disruption to the extent we reasonably can – and have been supporting firms to do the same.

Our Brexit preparations, alongside those made by other UK authorities and firms, have led the Financial Policy Committee (FPC) to conclude in its latest October report that “most risks to UK financial stability...  at the end of the transition period had been mitigated”. But FPC does not rule out market disruption, as the UK transitions to new trading arrangements with the EU.

That is why we have been taking steps to prepare for all scenarios at the end of the transition period, to minimise disruption to the extent we reasonably can – and have been supporting firms to do the same.

I will run through some of these preparations before covering some remaining risks.

Last week, we set out our approach to the Share Trading Obligation, in the absence of mutual equivalence. We confirmed that we will allow firms to continue to access UK and EU trading venues. This will ensure UK-based investors and asset managers continue to have the freedom to find the best possible trading terms, and to get the best outcome for themselves and their customers.

We want to preserve freedom for issuers from all jurisdictions to choose where and how to raise capital to support their business activities. However, we strongly believe that mutual, outcomes based equivalence is possible.

This week, the Chancellor announced that HM Treasury (HMT) will unilaterally grant the EU a wide range of equivalence determinations. The decisions cover various activities and will provide certainty to firms and their clients and counterparties. In some instances, the decisions will enable UK firms to continue using EEA products and services, and in others they will avoid increased cost and complexity for firms. Firms should consult the full list of decisions, and further information on the FCA’s website.

We are finalising our work with HMT to onshore EU legislation, which will ensure at the end of the transition period that firms have substantially the same regulatory requirements as before we left. So far, HMT has made over 60 Statutory Instruments relevant to the FCA and we have published almost 2000 pages of Handbook and Binding Technical Standards changes connected to EU withdrawal.

We have made significant updates to our Handbook website to give firms a clear view of what rules will look like after the transition period. 
Mindful of the number of new rules, we announced in early October that we would use our Temporary Transitional Power widely to allow firms more time to adjust to most new requirements.

In addition, we are building and preparing to switch over to new technology systems to implement onshored legislation and to take on supervisory responsibilities for firms previously regulated at EU level, like credit rating agencies and trade repositories.

As passporting will end on 31 December 2020, together with HMT, we have put in place a series of temporary regimes, such as the Temporary Permissions Regime - these will allow approximately 1500 non-UK firms and fund managers to operate in the UK immediately after the transition period.

Alongside the Financial Services Contract Regime, these will help resolve many of the cliff edge risks we would otherwise have faced, and have helped provide certainty to firms and markets.

We launched a consultation on our expectations and approach to authorising overseas firms, where we explain what we would look for when assessing firm applications. This will ensure that our regulatory framework allows EEA and other overseas firms to operate in the UK on a secure basis over the longer term, under predictable expectations, while limiting any risks of harm to consumers and markets.

To ensure continued cooperation with our counterparts after the end of the transition period, we have negotiated almost 80 Memoranda of Understanding with the European Supervisory Authorities and regulators from around the world. These will come into effect at the end of the transition period and allow us to continue to effectively supervise cross-border activity.

And we continue to engage with firms on their preparations. Of course, we recognise that firms are also responding to the ongoing impact of Covid-19, most recently with the second national lockdown implemented last week. However, the end of the transition period is coming, and it is vital that firms continue in their preparations for it. 

Moving to some remaining ‘cliff edge’ risks.  

In the absence of mutual equivalence, some firms will be caught by a conflict between the EU and UK Derivative Trading Obligations, potentially hampering their ability to trade derivatives where they see fit. We remain open to discussing with ESMA how to minimise any disruption that could arise as a result of overlapping requirements on financial counterparties. 

Other risks cannot be resolved through mutual equivalence. Chief amongst these is the risk that UK firms may not be able to continue servicing EEA-resident customers after the transition period ends. There is no EU-wide version of the UK’s Temporary Permissions Regime.

Many of the temporary measures previously put in place by EEA countries to prepare for a ‘no deal’ exit have lapsed. So, UK based firms wanting to continue servicing customers in the EEA from 1 January 2021, will need to ensure they meet local laws and regulators’ expectations by that date.

Firms must speak to local regulators as appropriate, obtain permissions, and repaper contracts where necessary. We expect all firms to treat customers fairly throughout this process.

There is no data adequacy decision as yet, so firms need to be prepared, to ensure personal data can be transferred from the EU to the UK – for example, through appropriate use of contractual clauses.

What all this means is that we all need to prepare for 1 January 2021. I urge you to take all reasonable steps to be ready ahead of exit day, for all scenarios. Your previous ‘no deal’ planning should stand you in good stead, but there is no room for complacency. 

Looking ahead: getting ready for a new environment

Looking ahead to the new year: 
•    the UK’s new regulatory framework;
•    our role on the global stage; and
•    UK’s future trade and market access.

The UK’s regulatory framework

After 1 January 2021, when EU law, and the EU regulatory structures, cease to apply in the UK, there will need to be a “resetting” of how financial services regulation will be made in the UK.

To this end, HMT is reviewing the UK’s future regulatory framework, and last month published a first consultation, proposing a split of roles and responsibilities between the Parliament, the Government and the regulators, which will see the transfer of more rule-making powers to the regulators.

These proposals should create a more agile and responsive regulatory system - we welcome this, as it should enable us to respond flexibly to market developments and changes in society, to protect consumers from harm and to ensure markets work well.

And this flexibility needs to be balanced with our accountability, and maintaining proper democratic oversight of our work and our decisions.  We look forward to discussing these issues with our stakeholders in the coming months.

Wherever we land on the regulatory framework, the FCA will continue to support openness and high regulatory standards, which together form the foundation for vibrant markets, and ensure that the real economy can access capital in both difficult and more normal times.

The FCA will continue to support openness and high regulatory standards.

As is the case with any jurisdiction, we will develop our rules where appropriate for our markets, whilst considering the impact on industry – this is the approach we and HMT have adopted in developing the UK’s prudential regime for investment firms, which achieves outcomes similar to the EU regime whilst taking into consideration the specificities of the UK investment firm market.

Similarly, we will continue to work closely with HMT on other aspects of the Financial Services Bill (FS Bill) to maintain openness and high standards.

This is true in terms of the rules we make domestically, but also in terms of how we facilitate overseas firms wishing to access the UK market. Notably, the FS Bill legislates for a new Overseas Funds Regime and the new framework for Gibraltar, both of which will provide a stable and transparent basis for cross border activity in their respective areas.

Our role on the global stage

Of course, the success of the UK regulatory framework does not only depend on the rules we develop in the UK. Financial markets are global, and interdependent. We have always been strong proponents of high-quality international standards, and active members of standard setting bodies such as FSB (Financial Stability Board), IOSCO (International Organization of Securities Commissions) and IAIS (International Association of Insurance Supervisors). We are committed to remaining at the forefront of developing and maintaining these standards.

International standards, and strong cooperation can enable cross-border activity.

This is hugely important. International standards, and strong cooperation can enable cross-border activity without compromising on regulatory outcomes, and ultimately reduce compliance costs for businesses serving different markets – leading to a better and healthier global financial system.

The events of this year, with the Covid-19 pandemic, have demonstrated this. In March, central banks and market regulators around the world, through multilateral fora and bilaterally, coordinated responses to the financial challenges posed by Covid-19.

That cooperation facilitated parallel and complementary action across jurisdictions to support the resilience of the financial system. As a result, during the acute phase of the crisis, markets remained open, and key business functions remained operational as governments introduced local ‘lockdowns’. 

Over the summer, authorities globally have been working together to assess how that shock permeated through the financial system and where vulnerabilities may lie. Looking ahead, the FSB and IOSCO are now jointly considering the capacity of different non-bank financial institutions to absorb and respond to stress.

We will consider what measures could be introduced to foster more stable and predictable market-based finance. A resilient and sustainable non-bank sector is vitally important to the recovery of the real economy, both in fulfilling short-term financing needs and long-term investment.

And as you can see from the Chancellor’s announcement this week, many of our priorities are global in nature, whether it is climate change, fin tech, or funds.

To take climate change as one example, good regulation has an important role to play in the transition to a low carbon economy. Building on the FSB’s Taskforce on Climate-related Financial Disclosures (TCFD) recommendations, we are focused on improving transparency for market participants and consumers; building trust in sustainable finance products; and ensuring we provide the right regulatory tools support firms.

From 1 January 2021, we are introducing rules requiring premium listed companies to make better disclosures about how climate change affects their business. We will also consult in the first half of 2021 on extending the scope of these rules and also on introducing TCFD obligations for asset managers, life insurers and pension providers.

We look forward to working with the Government, the Bank of England, as well as our international partners, in IOSCO and FSB, on these important areas.

Future trade and market access

Turning to trade and market access in financial services.

The UK is one of the most open jurisdictions in the world for financial services trade, and we remain committed to openness.

The UK is one of the most open jurisdictions in the world for financial services trade, and we remain committed to openness.

This week, the Chancellor announced the launch of a Call for Evidence on the UK’s overseas regime. This will help the Government better understand how different components of the regime are and could be used, to best facilitate a robust and open financial services sector.

We will work closely with HMT to ensure the UK’s overseas regime is fit for the future, guided by our strong commitment to open global financial markets underpinned by the highest standards of regulation and supervisory oversight.

We are also supporting the Government with technical advice on new trade and market access arrangements being developed with the EU and with other jurisdictions, and we welcome Treasury’s proposal to deepen partnerships with key financial partners across the globe. 
We are already beginning to see fruits of this work.

The UK-Swiss joint intention to agree a future Mutual Recognition Agreement speaks to the UK’s commitment to open markets rooted in equivalent regulatory outcomes and strong regulatory and supervisory cooperation. 

In September, the UK also secured an economic partnership with Japan, which includes new provisions that will facilitate appropriate cross-border data transfers, improve clarity for firms seeking or maintaining their authorisation, and paves the way for further dialogues about market access and equivalence.

And the FCA continues to maintain and strengthen relationships with key international counterparts, having recently participated in regulatory dialogues with the US and Singapore and our economic and financial dialogue with India.

As well as the benefits of trade and open markets, this work is an important part of our broader efforts to build close and cooperative relationships with our international partners, allowing us to address issues which are critical to the future of globally connected financial markets, and our wider economies.


In conclusion, looking ahead to the end of 2020, and beyond:

  • we should all continue to prepare ahead of the UK’s exit from the transition period, and not be complacent;
  • we will ensure that our regulatory approach to financial services remains effective and appropriate now that we have left the EU; and 
  • we will build on our global role outside the EU, whilst demonstrating our continued commitment to open markets, free trade, and the highest international standards of regulation.

All of this will require our continued working with you and with our international partners – and we look forward to that.