The Financial Conduct Authority (“FCA”) has been steadily building up their International Division to ensure they can drive forward the policy and deliver the work that is required, after Brexit, once the United Kingdom withdraws from the European Union (“EU”).
As the UK is due to leave the EU in March 2019, the FCA are planning for a range of scenarios at present. These scenarios include the prospects of ‘no deal’ and a ‘hard’ Brexit.
The FCA has been working closely with the Government, Bank of England and regulatory partners globally to enable a smooth transition. During the speech delivered on 19 July 2018, Nausicaa Delfas, Executive Director of International at the FCA said, “In terms of our longer-term future – our markets will remain highly integrated whatever the outcome of Brexit. We believe a good outcome is achievable, one that is in the interests of both the UK and the EU.”
She went on to outline that the regulatory body is working under the assumption that there will be a transition or implementation period. It is anticipated that this will run from March 2019 through to December 2020 therefore allowing more time for the industry to prepare and allowing for a smooth transition.
Reference was made to ‘cliff edge’ risks that would be caused by the abrupt loss of passporting within the financial services industry. As it stands, approximately £26 trillion worth of derivatives contracts could be affected. In addition to the risks to derivatives contracts, within the insurance industry, 10 million UK policyholders and 38 million EEA policyholders are at risk of not being paid out for claims on their policy.
Once the UK withdraws from the EU, all EU laws will cease to have any effect in the UK. It is clear that a key priority of the FCA is to ensure continuity of the legal and regulatory framework. The EU Withdrawal Act has now received Royal Assent, allowing existing EU legislation to be converted to UK law after March 2019. Additionally, all UK laws in place which implement EU obligations will be preserved post Brexit.
A further safeguard the FCA has been working on is the Temporary Permissions Regime (“TPR”). The TPR will allow EEA firms and funds using a UK passport (circa 8,500 financial services firms) to continue to operate, without needing to apply for FCA authorisation immediately post Brexit. These firms will be allowed to fulfil existing contracts and enter into new business with UK customers for a defined period once the UK exits. These firms will then be given ‘landing slots’ to make their application to be authorised to undertake business in the UK.
Whilst the FCA has been forthcoming and helpful when it comes to incoming business from EEA firms, there has not been a reciprocal version of TPR from the EU as of yet. This has led to a lack of commercial certainty and business disruption for UK authorised firms looking to passport into Europe (circa 6,000 financial services firms).
Regarding the topic of equivalence, Ms Delfas said, “At day one, our regimes will be equivalent. Our markets will remain highly integrated whatever the outcome of Brexit, and we think working to promote common global standards, alongside our work to onshore a rulebook that is equivalent to the EU on day one, provides a solid basis for cross border business to take place.”
The FCA are advising all firms to take responsibility for their own plans to ensure a successful Brexit transition, firms should utilise the FCA’s paper; ‘Preparing your firm for Brexit’. The regulator will continue to work with the industry and help provide guidance where applicable, but their main focus is on their objectives.
- Protecting consumers;
- Maintaining the integrity of the UK financial system; and
- Promoting competition in the interest of consumers.
Naturally, the FCA understands that it is the role of the Government to negotiate Brexit’s outcome, but the regulator has been clear about the type arrangements in relation to financial services that they believe are possible, and desirable, to maximise market access and benefits to consumers in the UK and EU.
These include the five principles of:
- cross border market access;
- consistent global standards to support global markets;
- co-operation between regulatory authorities;
- influence over standards; and
- the opportunity to recruit and maintain a skilled workforce.
Ms Delfas stated that, “neither the UK nor the EU want to see a significant misalignment in regulatory standards – nor indeed ‘a race to the bottom’ in regulatory standards. But it is likely that after our exit from the EU, the FCA’s regulatory frameworks may evolve.”
If you are interested to learn more about how Brexit may affect your firm, please contact Complyport today, firstname.lastname@example.org.