Financial services legislation after Brexit – announcements from HMT and FCA
The government have set out their approach to financial services legislation after Brexit under the European Union (Withdrawal) Act (“EUWA”), which forms part of the wider work the government is undertaking to prepare for the UK’s withdrawal from the EU (“Brexit”), with an implementation period that will start on 29 March 2019 and last until 31 December 2020.
EUWA 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 UK will continue to implement new EU law that comes into effect and the UK will continue to be treated as part of the EU’s single market in financial services; access to each other’s markets will continue on current terms and businesses, including financial services firms, will be able to trade on the same terms as now until 31 December 2020. UK firms will need to comply with any new EU legislation that becomes applicable during the implementation period. Passporting rights will continue during this implementation period and, hopefully, beyond.
HM Treasury states that the government is seeking a deep and special future partnership with the EU, which should be greater in scope and ambition than any such agreement before and encompass financial services. Given the highly regulated nature of financial services, the volume of trade between the UK and EU markets, and a shared desire to manage financial stability risks, it is essential to have a stable process for maintaining equivalent regulatory outcomes as legislation evolves – including a system to resolve disagreements at regulatory and supervisory levels.
HM Treasury intends to use powers in EUWA to ensure that the UK continues to have a functioning financial services regulatory regime in all scenarios; including ‘no-deal’, in which the UK leaves the EU on 29 March 2019 without a withdrawal agreement and implementation period having been ratified between the UK Government and the EU.
The FCA will be amending the FCA Handbook to ensure it is both consistent with changes the Government is making to EU law and functions effectively when the UK leaves the EU.
As March 2019 approaches, given the scale of the Handbook changes needed for Brexit, the FCA undertakes to limit Handbook changes unrelated to Brexit to those identified as core priorities in their Business Plan as well as other essential items.
The FCA plan to consult on these changes in Autumn 2018 and plan to consult on the rules which will apply to firms in the temporary permissions regime.
Important initiatives will continue, such as the High-Cost Credit Review, the implementation of the Senior Managers and Certification Regime and next steps from the Asset Management Market Study, but the FCA will delay rule making for some initiatives, such as work on illiquid assets or the remit of Independent Governance Committees.
The FCA have stated that it will not expect firms and other regulated entities providing services within the UK’s regulatory remit to have to prepare now to implement these new requirements. Firms and other regulated entities should look at the consultations and respond accordingly.