Brexit update for financial services firms - from 19 October 2019 to 25 October 2019

United KingdomScotland


This week saw the publication, and start of the UK’s legislative process for, the long-awaited bill to ratify and implement the EU/UK Withdrawal Agreement (“WA”). The revised WA was published on 19th October (for our commentary see last week's update and links to publications about the revised WA package – see below. The WA is very largely unchanged from the version negotiated by Mrs. May except for the Protocol on Ireland. The European Union (Withdrawal Agreement) Bill (“WAB”) was published on 21st October (see Document 2 below). HMG has published various explanatory notes and factsheets about the WAB (see the second link in Document 2) and the House of Commons library has published a guide to the WAB (see Document 4 below).

Mrs May’s government had published a white paper on the WAB but had refused to release the text of the WAB. Mr. Johnson’s government had also delayed publication until the start of the legislative process. The WAB ratifies and implements the WA and two other international agreements – the EEA EFTA Separation Agreement and the Swiss Citizens’ Rights Agreement. It dovetails with, and amends the European Union (Withdrawal Act) 2018 ("the 2018 Act").

There are no Financial Services (“FS”) specific provisions in the WA or the WAB. The 2018 Act provided the domestic law basis for exit from the EU on a no-deal basis (without a WA or any transition period). The WAB updates this regime for a WA regulated exit with a transition period. The more controversial aspects of the WAB are not relevant to FS. There are 3 main areas of interest for FS firms –

  • How does the single market continue to apply to the UK during the WA transition period (the WAB continues Mrs May’s confusing use of the term ‘implementation period’ (“I/T Period”))
  • The position at the end of the I/T Period when the UK leaves the single market – the no-deal default and the UK regulatory regime; and
  • The negotiation of the EU/UK future relationship/FTA (“FR”).

We now look briefly at the WAB under these 3 headings.

How does the single market continue to apply to the UK during the I/T Period?

Our previous updates of the 16 November 2018, 21 September 2018 and 27 July 2018, explained how the provisions of the WA would operate during the I/TP. The key point is that the UK will have ceased to be an EU member but will be treated, for most purposes, as if it were still a member state. It will cease to have voting rights and will not participate in EU institutions including the ESAs – EBA, EIOPA and ESMA – but EU law (both at exit and as it evolves dynamically during the I/T Period) is still to apply to the UK. For FS firms, the UK will thus effectively remain in the single market during the I/T Period.

The 2018 Act repealed the European Communities Act 1972 (ECA). This repeal was the key domestic mechanism to achieve exit/separation from the EU and its legal order. In essence, this change now needs to be delayed until the end of the I/T Period. This is achieved under the WAB, not by a simple delay to the ECA repeal, but by a series of convoluted amendments to the 2018 Act provisions; as the HoC library puts it - ‘Firstly, for almost all practical purposes it delays the repeal of the ECA until the end of the transition period. However, it achieves this by a convoluted mechanism: giving the ECA continued effect for transition ‘despite’ its repeal on exit day.’ This means that the application of EU law will no longer derive from the ECA, but the effect for FS firms during the I/T Period is largely the same. Namely, EU law will apply as it does now, in terms of direct effect and superiority, and it will apply on a dynamic basis, so new EU legislation and regulation will apply, with powers for secondary legislation to implement new directives. UK courts will be able to make references to the CJEU (notwithstanding the lack of UK judges at the court).

The position at the end of the I/T Period when the UK leaves the single market – the no-deal default and the UK regulatory regime

In essence, the WAB would preserve the convoluted UK legal/regulatory regime for no-deal under the 2018 Act (see our previous commentary on the 2018 Act/bill regime in our updates of 15 March 2019, 1 March 2019, 1 February 2019, and 9 November 2018) , but defers this from the point of exit to the end of the I/T Period (which the WAB confusingly calls the ‘IP completion day’). There have already been several potential no-deal exit points – 29 March, 12 April, 31 October 2019 and, as of the 28 October 2019, the deadline has been extended to 31 January 2020. Without a ratified WA, the no deal risk has just been delayed again. Under the WA/WAB, there will be a further no-deal scenario at the end of the I/T Period i.e. the possibility that the UK leaves the single market (SM exit) at that point without any FR treaty being in place (a no-FR SM exit) – see our last update on this topic. The risk of a no-FR SM exit will initially relate to the end of the I/T Period on 31 December 2020 but if there were an extension (which seems inevitable if an FTA is to be concluded) there would be another risk date at the end of the extended I/T Period (which would be no later than the end of 2022).

The WAB preserves the 2018 Act process for ‘freeze-framing’ EU law but applies this at the end of the I/T Period (rather than at the point of exit from the EU). This will ‘preserve’ EU derived domestic legislation (such as UK SIs implementing EU directives) at that point and on-shore/port/convert EU law/regulation with direct effect into domestic UK law. The resulting UK regime is then modified by SIs to remove/replace the elements of EU law which no longer apply to the UK (such as mutual recognition, passporting and the role of the ESAs) – see previous updates and the RegZone ‘No-deal database’ here.

The basic model for UK law (and the UK regulatory regime) at the end of the I/T Period is therefore the same as under the 2018 Act. Of course, EU law will have evolved further during the I/T Period and the many SI modifications of/relating to retained EU law will have to be updated. (and the period for SI modifications is accordingly extended by the WAB). The WAB does further complicate the legal structure of the 2018 regime – for example, by applying EU law via the WAB (both broadly during the I/T Period and more narrowly thereafter as required by the WA), by introducing a new category of ‘relevant separation agreement law’ and with additional delegated powers to make modifications during the I/T Period. None of these, however, appear to be critical from an FS perspective.

As we explained in our last update, a no-FR SM exit is of greater concern in the goods sectors because the extent of FS mutual recognition under the FR is expected to be very limited (according to the text of the Political Declaration (“PD”) on FS, which is the same under the May and Johnson versions of the PD-a question raised by the ESC in Document 8 below). In the early days of Brexit, it seemed likely that there would be an EU/UK treaty covering bilateral FS mutual recognition, which would, to some degree, replace EU law/single market arrangements. There could then be a transition from the single market to bilateral mutual recognition (so that the no-deal regime under the 2018 Act would never be used); the PD text abandons this idea.

It now seems that the 2018 Act regime for freeze-framing, on-shoring and modifying EU retained law will be the basis for UK FS regulation (and more broadly) irrespective of when and how the UK leaves the single market. This might occur under (i) in a no-deal scenario (ie without a WA or I/TPeriod) on 31 January 2020 or at a later date (under the 2018 Act) or (ii) under a no-FR SM exit at the end of 2020 or at the end of an I/T Period extension (under the 2018 Act and WAB combined) or (iii) under a FR/FTA (taking effect – provisionally or otherwise – from the end of the I/T Period (this smooth transition has always apparently been the aim of HMG).

The negotiation of the EU/UK future relationship/FTA.

The WAB provides various procedures for parliamentary scrutiny. These are no doubt intended to create the impression of a greater role for parliament but are mostly quite limited in terms of the powers ceded by HMG. One such provision is Clause 31 which requires parliamentary approval of the UK’s negotiating objectives for the FR process. This reflects the EU process, evident in the negotiation of the WA, whereby the European Council provided ‘negotiating directives’ for the EU’s negotiating team. HMG, of course, did not follow this practice for the WA negotiations; prior approval of the objectives should reduce the risk of Parliament rejecting a negotiated treaty/FR. The WAB does not provide Parliament with a right of veto or a ‘meaningful vote’ on the final FR but ratification/implementation is likely to require primary legislation.

Clause 31 provides that any objectives must be consistent with the PD. This is to be expected, but for the FS sector it is another reminder of the bleak outlook for EU/UK mutual recognition and market access. The PD wording agreed by Mrs. May, and left untouched by Mr. Johnson, reads as a charter for the EU to continue its trade war in FS. One can imagine Parliament wanting to improve the outcome for UK FS firms, but the scope will be limited. The WAB also requires approval for changes to the negotiating objectives, but only HMG can propose a change.

Other WAB provisions give the UK Parliament a power to block, but not to require, a proposal for an extension of the implementation period. This is therefore a concession to the hard-line Brexit/no-deal contingent but not to the those looking for a negotiated FR. This one-sided provision must be seen in the context of the 31 December 2020 end date for the I/TP under the current WA; there will clearly be insufficient time to negotiate a full FR by then and an extension is likely to be necessary to avoid a no-FR single exit.


  1. FCA: PS 19/26 Brexit- Regulatory Technical Standards for Strong Customer Authentication and Common and Secure Open Standards of CommunicationThe FCA have published this Policy Statement in response to CP 18/44. The policy confirms that post exit, a UK-RTS will apply and makes the FCA the relevant authority. The UK RTS is essentially the same as the EU SCA-RTS but without these changes the Payment Services Regulations 2017 (“PSR”) would cease to function after Exit day. This is because the PSR on exit day will no longer refer to the EU SCA, so if no UK equivalent system is in place the PSR will become inoperable.
  2. European Union (Withdrawal Agreement) BillText of the Bill is available here. HMG have published a number of factsheets and explanatory notes which may be accessed here.
  3. The Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 3) Regulations 2019/1390This SI has been made. It addresses deficiencies in UK domestic law and retained EU law. It makes amendments to a number of financial services EU exit statutory instruments including those relating to: MiFID/MiFIR, insider dealing, equivalence, financial regulators’ powers, money market funds, Solvency II and securitisation.
  4. HoC: European Union (Withdrawal Agreement) BillThis link puts together a set of HoC Library publications which provide guidance to the Bill. They are broken down by subject area. The link will be updated throughout the week.
  5. TSC: Brexit economic analysisTSC has commented on Sajid Javid’s letter with regard to the above, saying “the Government must … urgently explain why the previous analysis of an FTA does not correspond to the FTA in the political declaration and provide clarity on what the impact is of the current proposal”.
  6. Department for Exiting the EU: New Withdrawal Agreement and Political DeclarationThe full texts of the revised Withdrawal Agreement and Political Declaration have been published.
  7. HoC: Brexit deal: a guide to the Withdrawal Agreement and Political DeclarationThis guide brings together HoC publications on the October 2019 Withdrawal Agreement and Political Declaration.
  8. HoC European Scrutiny Committee: 1st Report of Session 2019-20Sections 1, 4 and 10 of the report consider the Brexit UK contributions to the EU budget in 2019 and 2020 in the event of no deal, financial support for European businesses from the EU budget in the event of no deal and UK access to the EU market for financial services after Brexit respectively. With regard to the last of these, the Committee has asked HMT to clarify by 31 October 2019 if the Government is seeking any changes to the sections of the Political Declaration on the future UK-EU relationship related to financial services; to confirm if the Government is considering seeking equivalence under EU law post-Brexit; and, if so, under which specific pieces of EU legislation such equivalence is being prioritised.

Other publications from the RegZone Brexit news feed

HoL EU Financial Affairs Sub-Committee: Brexit – the financial settlement

The Committee’s report argues that there would be serious implications for future negotiations with the EU and the UK's wider reputation if the UK did not honour the terms of the financial settlement.

European Parliament: Brexit

Guy Verhofstadt and David Sassoli have commented on the state of play with the withdrawal agreement and potential extension.

HoC European Scrutiny Committee: UK contributions to the EU budget after 31 October 2019

The Committee’s letter to Sajid Javid requesting information on a number of points has been published.

ESMA: European common enforcement priorities for 2019 annual financial reports

ESMA’s statement highlights the priorities that European enforcers will consider when examining the 2019 annual financial reports of listed companies, including IFRS 9 (financial Instruments for credit institutions),the potential implications of the transition from one interest rate benchmark rate to another and the importance of disclosures analysing the possible impacts of Brexit.

HoC: Brexit: the financial settlement

This HoC Library briefing has been updated.

EC: Speech by Donald Tusk

Text of Donald Tusk’s speech to the European Parliament on Council meetings of 17 and 18 October 2019 follows, in which he updates the European Parliament on Brexit.

PMO: Letters to the EU Council and Donald Tusk

Texts of the letters from the UK to the Council and to Donald Tusk dated 19 October 2019.