Further to the announcement from the Treasury on its approach to amending financial services legislation under the European Union (Withdrawal) Act, this statement provides stakeholders with an update on how we are preparing for the UK leaving the European Union (EU).
We continue to prepare for a range of scenarios, including one in which the UK leaves the EU without a withdrawal agreement and implementation period having been ratified between the UK Government and the EU.
The EU (Withdrawal) Act will transfer and convert existing EU law at the point of exit into UK law. It also gives powers to ministers to make secondary legislation to amend this legislation to ensure it functions effectively when the UK leaves the EU.
As part of this, the Treasury has tasked us with amending and maintaining EU binding technical standards (detailed EU rules). These rules sit underneath EU regulations and directives and provide technical detail of how those requirements must be met.
We have proposed amendments to our Handbook to ensure it is consistent with changes the Government is making to EU law and it functions effectively when the UK leaves the EU. In the run up to exit day, we will limit Handbook changes unrelated to Brexit to those identified as core priorities in our Business Plan as well as other essential items.
The Treasury has laid nearly all of the Statutory Instruments (SIs) needed to onshore EU legislation in Parliament. We have been providing them with technical advice during this process. We have also opened the notification window for the temporary permissions regime.
In March 2018, the UK and the EU reached agreement on the terms of an implementation (or transitional) period following the UK’s withdrawal from the EU.
The implementation period is intended to operate from exit day until 31 December 2020. During this time, EU law would remain applicable in the United Kingdom, in accordance with the overall withdrawal agreement. Firms, funds and trading venues would continue to benefit from passporting between the UK and European Economic Area (EEA) as they do today. Obligations derived from EU law would continue to apply and firms must continue with implementation plans for EU legislation that is still to come into effect before the end of December 2020.
However, the implementation period forms part of the withdrawal agreement, and so it will only go ahead if the withdrawal agreement is approved. We therefore continue to work to ensure the UK’s legal and regulatory framework functions in all scenarios.
The EU (Withdrawal) Act
The EU (Withdrawal) Act will repeal the European Communities Act 1972, preserve existing UK laws which implement EU obligations and convert existing EU law at the point of exit into UK law. The Act gives powers to ministers to make secondary legislation to amend this legislation to ensure it functions effectively when the UK leaves the EU.
As part of this process, the Government has laid many SIs in Parliament. In parallel, we have consulted on amendments to its Handbook and to onshored binding technical standards.
The Treasury has set out that its approach to onshoring the EU acquis will not rely on any new, specific arrangements being in place between the UK and the EU after exit. As a general principle, EU member states will be treated as third (non-EU) countries – although there are instances where the Treasury would deviate from this general approach, including to provide for a smooth transition. We are taking the same approach. This will ensure that the requirements we are responsible for are consistent with the wider legislative framework. In certain cases, we have deviated from this general approach where this is necessary to ensure a smooth transition to a new regime, or to otherwise support our strategic and operational objectives.
EU binding technical standards
The Treasury has given us, the Prudential Regulation Authority (PRA), the Bank of England and the Payment Systems Regulator (PSR) responsibility for amending and maintaining existing onshored EU binding technical standards so that they can operate after Brexit.
Binding technical standards are EU legislation but they do not set overall policy direction. They sit underneath ‘level 1’ EU legislation and provide technical detail on the overall legislative requirements.
The FCA Handbook
Our Handbook implements or refers to EU legislation and will need to be amended. We will not be making broader policy changes to our Handbook unless necessary. The changes are limited to amendments to ensure that the Handbook remains functional after Brexit and reflects any legislative changes made by the Government.
In our Policy Statement (PS19/5) we have responded to our Brexit consultations, including how we will amend binding technical standards and the Handbook. In addition, we continue to liaise with a range of stakeholders to refine the regulatory framework for Brexit.
Given the scale of the Handbook changes needed for Brexit, our rule making outside that context will focus on our core priorities as set out in our Business Plan. This will help us to ensure that our Handbook functions effectively on exit day and will enable stakeholders to absorb and adapt to changes to the Handbook as a result of Brexit.
We will continue to progress important initiatives, such as following up on High-Cost Credit Review, the implementation of the Senior Managers and Certification Regime and next steps from our Asset Management Market Study. We will delay our rule making for some initiatives, such as our work on illiquid assets or the remit of Independent Governance Committees.
Temporary permissions and new regulatory responsibilities
In December 2017, the Government announced its intention to introduce a temporary permissions regime. The regime is now law and, if no deal is reached with the EU, will allow EEA firms to continue to operate in the UK for three years after the UK leaves the EU. It will also allow EEA-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK. For those firms wishing to maintain their UK business on a permanent basis, the regime will provide sufficient time to apply for full authorisation from UK regulators.
The notification window opened on 7 January 2019.
What does this mean for you?
The Treasury has announced that it will bring forward measures that will allow for some flexibility in applying new requirements under the EU (Withdrawal) Act. The Treasury has now laid a Statutory Instrument that will give us, the PRA and the Bank of England specific powers in order to introduce further transitional measures. Firms should refer to our statement.