Brexit — FCA’s expectations of firms

The Treasury has published legislation to give the UK financial regulators the power to make transitional provisions connected to changes to financial services legislation. If the UK leaves the EU without an agreement, the FCA intends to use this power to ensure that firms and other regulated entities can generally continue to comply with their regulatory obligations as they did before exit day for a temporary period.

However, the FCA has said that there are some areas where it would not be consistent with its statutory objectives to grant transitional relief. In the areas listed below, the FCA expects firms and other regulated persons to begin preparing to comply with changed obligations now.

  • MiFID II transaction reporting — the UK’s transaction reporting regime under MiFID II will change as a result of Brexit, including connected obligations such as the requirement to submit financial reference data. These changes will apply from exit day. This includes EEA firms entering the temporary permissions regime, as well as UK-approved reporting mechanisms (ARMs) that submit reports on behalf of firms. Receiving complete and accurate transaction reports is crucial to the FCA’s ability to ensure market oversight and integrity.
  • EMIR reporting obligations — from exit day, all firms and central counterparties (“CCPs”) who enter into derivatives transactions in scope of EMIR will be required to report into a UK-registered trade repository (TR). This is crucial to enable TRs to fulfil their reporting obligations to the FCA (or the Bank of England in the case of CCPs), enabling oversight of derivative markets and effective monitoring of systemic risk. (See FCA FRIDS and Transaction Reporting below).
  • Issuer rules — EEA entities that have securities admitted to trading, or traded, on UK markets will be required to submit information to the FCA and disclose certain information to the market after exit. This is integral to the FCA’s ability to ensure the effective functioning of markets, protection of consumers, and enhancing market integrity.
  • Contractual recognition of bail-in — to safeguard resolvability, firms will need to include contractual recognition of bail-in within terms in all new or materially-amended liabilities governed by the law of an EEA State, with the exception of unsecured liabilities that are not debt instruments.
  • Short selling notifications — any firm wishing to use the exemption for market-making activities under the Short Selling Regulation will be required to join a UK trading venue and notify the FCA of their intention to use the market maker exemption 30 days ahead of their intended use. Any notifications already made to the FCA will remain valid post-exit. This is essential to the FCA’s ability to monitor short selling activity and ensure market integrity.
  • Use of credit ratings for regulatory purposes — after exit, all ratings will need to be issued or endorsed by a Credit Ratings Agency (“CRA”) established in the UK and registered with the FCA for them to be eligible for regulatory use. Users of credit ratings should therefore take steps to ensure they are operationally ready to use credit ratings issued or endorsed by FCA-registered CRAs after exit day. To help provide some continuity to users of credit ratings, ratings issued or endorsed in the EU before exit by a CRA with an affiliate registered or currently applying for registration with the FCA, may be used for regulatory purposes in the UK for up to one year after exit.
  • Securitisation — UK originators or sponsors will need to direct notifications to the FCA from exit day for UK securitisations they wish to be considered simple, transparent, and standardised (“STS”) under the Securitisation Regulation. UK originators, sponsors, or securitisation special purpose entities (“SSPEs”) choosing to make use of a third-party verifier (“TPV”) to assess compliance with the STS criteria, may only use a TPV established in the UK and authorised by the FCA .