Brexit update for financial services firms - week ending 30 November 2018


  1. Department for Exiting the EU: Withdrawal Agreement and Political Declaration laid before Parliament following political agreement. The UK government has endorsed the UK-EU Withdrawal Agreement. This includes the final wording on the extension of the transition period. The statement can be accessed here. Article 132: “Notwithstanding Article 126, the Joint Committee may, before 1 July 2020, adopt a single decision extending the transition period for up to one or two years.* * In case of extension, the Union will notify other parties to international agreements thereof.”
  2. ESAs Propose to amend bilateral margin requirements to assist Brexit preparations for OTC derivative contracts The draft regulatory technical standards (RTS) proposes to introduce a limited exemption in order to facilitate the novation of certain OTC derivative contracts to EU counterparties during a specific time window. The press release can be accessed here. “The draft RTS propose, in the context of the United Kingdom's (UK) withdrawal from the European Union (EU), to introduce a limited exemption in order to facilitate the novation of certain OTC derivative contracts to EU counterparties during a specific time-window. The amendments would only apply if the UK leaves the EU without the conclusion of a withdrawal agreement – a no deal scenario. The draft RTS complement the similar proposal published by ESMA on 8 November with respect to the clearing obligation. The draft RTS allows UK counterparties to be replaced with EU ones without triggering the new procedures defined in the bilateral margin RTS. This limited exemption would ensure a level playing field between EU counterparties and the preservation of the regulatory and economic conditions under which the contracts where originally entered into. Its scope, time and intent are aligned with the draft RTS regarding the clearing obligation that ESMA published on 8 November. The window for the novation of OTC derivative contracts which fall under the scope of this amending regulation and the one published by ESMA would be open for twelve months following the withdrawal of the UK from the EU. Counterparties can however start repapering their contracts ahead of the application date, making the novation conditional upon a no-deal Brexit, given the conditional application date of these two amending regulations. The ESAs and other EU authorities and institutions have been clear on the importance for market participants to be prepared for Brexit, including the possibility of a no-deal scenario. These draft RTS provide regulatory solutions to support counterparties' Brexit preparations and to maintain a level playing field between EU counterparties, while addressing potential risks to orderly markets and financial stability. As regards non-centrally cleared OTC derivative contracts, these two measures will be the only regulatory measures the ESAs intend to propose to help address the legal uncertainty raised by the withdrawal of the UK from the EU and to ensure a level-playing field between EU counterparties. Counterparties should start negotiating as soon as possible the novations of their transactions which are in the scope of these amending regulations, given the twelve month timeframe to benefit from it.”
  3. HMT: The Financial Services (Implementation of Legislation) Bill – policy note

This bill would provide the power, in a no-deal scenario, for the UK to implement and make changes to a specified list of ‘in-flight files’. These are pieces of European Union financial services legislation agreed or in negotiation at the point of exit, with implementation dates falling in the two years after exit. The policy statement can be accessed here.

“The Bill consists of one substantive clause which will allow the Government to implement aspects of key pieces of EU financial services legislation known as ‘in-flight files’. These have either i) been published in the Official Journal of the EU, but are not operative immediately before exit day and so are not transferred onto the UK statute book by the EUWA, or are operative but reliant on non-operative clauses, and so have not been transferred onto the UK statute books by the onshoring process, or: ii) are currently in negotiation, and may enter into the Official Journal up to two years after the UK leaves the EU.

Only those ‘in-flight files’ considered necessary for UK financial services following exit are within the scope of the power. These are specified on the face of the Bill. In many cases the UK has played a leading role in shaping them over a number of years for the benefit of consumers and industry. For example, the UK strongly supported the Bank Recovery and Resolution Directive II, which will provide regulators with an updated resolution framework and enable the UK to meet international commitments, and the Prospectus Regulation, which will cut the cost to businesses of producing a prospectus in the UK.

In a no-deal scenario, it is important that the Government has the power to both implement these and other files, and to make sure they serve the interests of the UK outside the EU, rather than accepting EU law wholesale. The Bill will therefore provide the Government with the power to i) choose to implement only those EU files, or parts of those files, which are both appropriate and beneficial for the UK, and ii) adjust and improve the legislation as it is brought into UK law to ensure that it works better for UK markets. This will be critical to protecting and enhancing the reputation and competitiveness of the UK as a global financial services centre.”

Other publications from the RegZone Brexit news feed

European Commission: Michel Barnier makes a statement at the Plenary session of the European Parliament on the Article 50 negotiations with the United Kingdom

Michel Barnier requests all Member States to ratify the Withdrawal Agreement. The statement can be accessed here.

FCA Statement on EU Withdrawal Impact Assessment

The statement sets out the impact of the Withdrawal Agreement and future framework on the FCA’s objectives. The impact assessment can be accessed here.

European Commission declares as inadmissible request for EU referendum on the UK remaining or leaving

The Commission has today decided not to register a European Citizens’ Initiative entitled ‘EU wide referendum whether the European Citizens want the United Kingdom to remain or to leave’. The Commission based this decision on the matter falling outside the competence of the EU. The press release can be accessed here.

Department of Exiting the EU: Exiting the European Union: Publications

The Department of Exiting the European Union has published a collection of documents to support public and parliamentary assessment of the withdrawal agreement agreed with the EU. The long term economic analysis includes an assessment of financial services. The collection can be accessed here.

European Council endorses Agreement on the withdrawal of the UK from the EU

On Sunday 25 November the European Council endorsed the UK- EU Withdrawal Agreement. The press release can be accessed here.

HoC: Treasury Committee to take evidence on the economic impact of the Withdrawal Agreement and the joint Political Declaration

Evidence will be obtained from the Bank of England and the FCA and will be published immediately on receipt. The press release 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.

[1] Regulatory Technical Standards

[2] Nationalising the Aquis

[3] Dual recognition coordination (DRC) is explained in Chapter 1 of our April 2017 Report. DRC is a broad term to cover a variety of techniques such as “mutual recognition”, “home state recognition/supervision”, “deference”, “substituted compliance” and “passporting”.