Brexit update for financial services firms week - ending 19 October 2018

HMT: Speech by Philip Hammond

Text of a speech given by Philip Hammond at the Annual Investment Association Dinner on 16 October 2018 follows. Topics include: the investment management sector; Brexit and the Government's investment management strategy. He notes that "at my Budget in a couple of weeks I will say more about how we can ensure DC pension funds are able to make long-term investment decisions, for the benefit of both their members, and the wider UK economy". The full speech can be accessed here.

“And what we have proposed is logical:

A framework that allows the benefits of UK-EU financial services trade to continue – and maintains open markets, and deep regulatory cooperation.

Under our plan we would build upon the EU’s existing ‘equivalence’ regimes but expand their scope to recognise business activities that are in the interest of both the EU and the UK but not currently covered by the existing regime.

This framework would be grounded in a legally-binding bilateral agreement governing process, with institutional arrangements for regulation and supervision to provide long-term certainty for firms and investors.

Of course - we recognise that this will be a new kind of relationship – reflecting a new balance of rights and responsibilities with decisions relating to access and to our respective markets being decided individually by both sides but within a clear bilateral framework of process that ensures the arrangement is commercially viable – for example through appropriate notice periods for any changes.

There is no reason at all why this new kind of relationship cannot support deep levels of trade and interconnectivity even though we will be outside of the EU, the Single Market and Customs Union.”

[…]

“I know for people in this room tonight there is a specific and important question over the regulatory cooperation agreements that underpin portfolio delegation.

I am clear: these delegation arrangements are critical to the investment management sector.

And the direction of travel globally – in this case, strongly supported by the US – is to liberalise.

Investment Management is incredibly important to the UK’s financial services ecosystem but these services are also just as important for the EU - portfolio delegation allows the UK investment management industry to run 35% of the assets under management in the EU – more than twice as much as any other member state.

So - as we made clear in the Technical Notices we published over the Summer we expect these arrangements to continue this model is the global norm, and there is no reason why it should not continue to be so.

The FCA stands ready to agrees these MoUs I was pleased to hear the Chairman of ESMA say he plans on having these agreements in place well before March and the Chairman of the French Market Authority say he has “absolute conviction” that they will be agreed before we leave the EU.

I share his view.”

House of Lords Legislation Secrutiny Committee (Sub-Committee B): Draft EEA Passport Rgiths (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018

This publication appears as one of the Committee's papers regarding proposed negative SIs under the European Union (Withdrawal) Act 2018. It raises concerns that HMT has proposed that the negative, rather than the affirmative, procedure should apply and has published a response from John Glen on this point, adding that "the House may wish to press for a fuller justification of the choice of negative procedure than has so far been given". An appendix to the report provides further details of the SI in a Q&A format. The full publication can be accessed here.

“HMT has said that the PRA estimates it will receive approximately 160 applications for authorisation from EEA firms, many of them substantial and complex; and that this would be a significant increase by comparison with the PRA’s current experience of dealing with around a dozen applications for authorisation per year, normally from start-ups or relatively small firms. As regards the FCA, HMT has told us that, in the year to 31 March 2018, the FCA processed approximately 1,200 applications for authorisation from firms (excluding consumer credit); that applications from a proportion of the firms that passport into the UK would represent a significant increase; and that, for business planning purposes, the FCA is using an assumption of just under 1000 firms that may use the regime (in addition to the business as usual figure). HMT has said that it is content that the PRA and FCA are making adequate preparations to deal with these applications.”

[…]

“The draft Regulations allow for the possibility that the period of the regime could be extended in the light of an assessment of progress by the regulatory bodies. We consider it sensible that the Government should be able to introduce such an extension, and we think that a decision to do so would be a matter of great interest to the House. Given the significance of any regulations to extend the temporary permissions regime, however, we do not see it as self-evident that such an instrument should be subject to the negative, rather than the affirmative, procedure, as HMT has proposed. The Economic Secretary to the Treasury has stressed that HMT would be able to modify the time limits only if it considered it necessary to do so. While accepting that this would be the case, we take the view that the House might well wish to debate such a necessity, and that it may also wish to press for a fuller justification of the choice of negative procedure than has so far been given”

EC: Statement by Donald Tusk

Donald Tusk’s statement after the Council meeting 17/18 October 2018 follows. It can be accessed here.

“As there is a lot of speculation about the length of the transition period once the UK leaves the EU, let me say this. The issue of the length of the transition period was not discussed among the EU27 leaders yesterday. But let me recall that in her Florence speech in September 2017, Prime Minister May proposed a transition period of around 2 years. And the EU accepted this proposal unanimously. Therefore, if the UK decided that an extension of the transition period would be helpful to reach a deal, I am sure that the leaders would be ready to consider it positively.”

Other publications from the RegZone Brexit news feed

FCO: Sanctions policy if there's no Brexit deal

This publication sets out what would happen to sanctions if the UK leaves the EU without a deal. The publication can be accessed here.

EC: Statement by Donald Tusk

Text of Donald Tusk's 15 October 2018 letter to Council members ahead of the meeting on 17/18 October 2018 follows. The full statement can be accessed here.

HoC Exiting the EU Committee: Letter from Guy Verhofstadt

The Committee has now published a letter from Guy Verhofstadt concerning Brexit and continuity of contracts. The letter can be accessed here.

PMO: Statement by Theresa May

Text of Theresa May's statement to HoC on Brexit on 15 October 2018 follows. The statement can be accessed here.

EC: Relocation of EBA

COREPER has approved, on behalf of the Council, an agreement with the European Parliament on the text of the regulations for the relocation of EBA to Paris. The publication can be accessed here.

BoE: FPC

BoE has now published the record of the FPC meeting held on 3 October 2018. It can be accessed here.

TSC: BoE Brexit analysis

TSC has published Mark Carney's response to TSC's request with regard to the above. He notes that BoE " will provide an analysis of how the EU Withdrawal Agreement will affect our ability to deliver our statutory remits for monetary and financial stability, including in a ‘no deal no transition’ scenario". The publication can be accessed here.

Draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018

These Draft Regulations have been laid before Parliament under paragraph 1 of Schedule 7 to the European Union (Withdrawal) Act 2018, under the affirmative procedure by resolution of each House of Parliament. A draft explanatory memorandum has also been published. These can be accessed here.

HoL: Case for a referendum on the outcome of EU withdrawal negotiations

This HoL Library Briefing has been prepared ahead of a debate taking place in HoL on 25 October 2018. The briefing paper can be accessed 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.