Brexit update for financial services firms - week ending 6 July 2018

HM Government Chequers Statement

It sets out the Government's position on the future relationship with the EU. It is noted that preparations would be stepped up to address potential outcomes, including the possibility of "no deal". The full statement can be accessed here.

BoE: recording of fpc meeting

BoE has now published the record of the FPC’s 19 June 2018 meeting. The full record can be accessed here.

Ensure a UK legal and regulatory framework is in place

“Much of the UK’s legal and regulatory framework for financial services is derived from EU law. Directly applicable EU law would need to be brought into UK law. Changes would need to be made to the resulting legal framework to make it workable when the UK was no longer a member of the EU. UK regulatory authorities would also need to make changes to their own rulebooks to reflect the new legislation. Shortly after the FPC’s meeting, the EU (Withdrawal) Act had been passed by Parliament. HM Treasury had started publishing draft secondary legislation, and intended to lay the first financial services statutory instruments (SIs) shortly after Royal Assent. SIs establishing the temporary permissions and recognition regimes would be amongst the first laid. The Bank and the Financial Conduct Authority (FCA) expected to consult on rule changes shortly afterwards. The FPC judged that the risk to the UK was at a medium level, and that the passing of the EU (Withdrawal) Act would mean that there had been a reduction in risk since March.”

Clearing services

“In the absence of an agreement or recognition by the European Securities and Markets Authority of UK CCPs (see above), EEA clearing members and their clients currently using UK CCPs would need to find new arrangements for future clearing services with CCPs authorised or recognised by EU authorities. The UK Government had committed to legislate, if necessary, regarding the recognition of non‑UK CCPs, including a temporary recognition regime, so that these CCPs would continue to be able to provide clearing services to UK clearing members and clients in order to avoid disruption. Once this legislation was passed, risks to UK clearing members and clients would be mitigated. In light of this, and since the FPC’s meeting in March, the Bank had written to non-UK CCPs on 28 March 2018 to explain these CCPs could plan on the assumption that they would only need recognition by the end of the implementation period. The FPC judged that the risk to the UK remained at a medium level and the risk to the EU remained at a high level.”

Banking services

“Banks would need the necessary permissions and structures in place to continue providing services to customers on a cross-border basis. Some UK-based banks were in the process of undertaking restructuring and obtaining necessary regulatory permissions for EU subsidiaries. The UK Government had committed to legislate, if necessary, for a temporary permissions regime that would enable EEA banks to continue to operate pending authorisation. Once this legislation was passed, risks to UK customers would be mitigated. In light of this, and since the FPC’s meeting in March, the PRA had written to EEA banks on 28 March 2018 to explain that these banks could plan on the assumption that they would only need PRA authorisation by the end of the implementation period. The FPC judged that the risk to the UK and to the EU remained at a medium level.”

Asset management

“Restrictions on cross-border portfolio delegation could require disruptive changes to asset managers’ business models. To avoid this, EU national competent authorities would need to enter into co‑operation agreements with the FCA. Asset managers and their funds would also require authorisation to continue to market retail funds across borders. To enable funds domiciled in the EEA to continue to be marketed to investors in the UK, the UK Government had committed to legislating for a temporary permissions regime if necessary. Since the FPC’s meeting in March, the FCA had said that affected firms and funds did not need to submit an application for authorisation at this point. The FPC judged that the risk to the UK and to the EU remained at a medium level.”

Personal data

“Financial companies’ ability to carry out new and existing financial services might be impaired by barriers to the cross-border flow of personal data between the UK and EEA. This could be mitigated if the UK and EU were to recognise each other’s data protection regimes as ‘adequate’. The UK Government had indicated it is pursuing this via an EU-UK agreement. Companies could also take steps to mitigate this risk by, for example, introducing new clauses into contracts that permit data transfer. But this may not be comprehensive or completely effective. The FPC judged that the risk to the UK and to the EU remained at a medium level.”

Other publications from the RegZone Brexit news feed

HoL: Brexit: UK-EU Relations

On 2 July 2018, HoL debated the EU Committee's report. The transcript can be accessed here.

HoC Exiting the European Union Committee: The progress of the UK’s negotiations on EU withdrawal: data

The Committee's report urges the Government to start the process to secure a Data Adequacy Decision from the EU as soon as possible to maintain data flows between the UK and the EU after 29 March 2019. It suggests that the UK should seek a treaty, rather than a one-way adequacy decision made by the EC. The full report can be accessed here.

EC: Report by Donald Tusk to the European Parliament

Text of this statement given on 3 July 2018 follows. Topics include: Brexit and the completion of the Banking Union. The full statement can be accessed here.

The European Union (Withdrawal) Act 2018 (Commencement and Transitional Provisions) Regulations 2018/808 (C63)

These Regulations bring into force various provisions of the European Union (Withdrawal) Act 2018. The full report can be accessed here.

TSC: Brexit impact analysis – FCA/BoE

TSC has published letters sent to FCA and BoE asking for their commitment to publishing an analysis of the impact of the Withdrawal Agreement and future framework (once it has been negotiated) on their ability to meet their objectives, in good time before Parliament comes to make its key decisions. The letter to the FCA can be accessed here and the letter to the BoE can be accessed here.

EBA: Interview with Pentti Hakkarainen

Text of a Bloomberg interview with Pentti Hakkarainen on 29 June 2018 has now been published. Topics include: the banking sector and Brexit. The full interview can be accessed here.

Department for Exiting the EU: Speech by Robin Walker: Securing the future of mutual recognition of professional qualifications

This speech was given on 3 July 2018 to industry representatives on the future of mutual recognition of professional qualifications. The full speech can be accessed here.

HoC: Brexit - the exit bill

This HoC library briefing on the Brexit "divorce bill" includes a synopsis of June-December 2017 negotiations. The full briefing paper can be accessed here.

HoC European Scrutiny Committee: 33rd Report of Session 2017-19

Section 6 of the report looks at a proposed Directive with regard to improving cross-border law enforcement access to financial information and details the latest ministerial responses to the Committee’s specific concerns (including with regard to Brexit). This matter is still under scrutiny by the Committee. Access the full report here.

CMS RegZone publishes weekly updates (available via email, on-line and via Twitter) on Brexit developments for financial services firms. These provide analysis and commentary on significant developments during the week in question. A daily digest of Brexit news (without analysis or commentary) is also available by email here and online via the RZ news wizard here (both of these can be filtered using the Brexit topic). Links to publications are contained in each update; publications released before the updates commenced in April 2018 can be found in a bibliography here. CMS RegZone publication ‘Where we stand’ provides an overview of the current position in a single report; this is updated regularly to take account of the key developments from the weekly updates.