Brexit update for financial services firms - week ending 1 February 2019


1. FCA: Brexit - What we expect firms and other regulated persons to do now

FCA has published press releases which outline how it would use the temporary transitional power in the event of a “no deal” Brexit. FCA is expecting firms to begin complying with changes now with regard to certain areas: MiFID II transaction reporting; EMIR reporting obligations; issuer rules; contractual recognition of bail-in; short selling notifications; the use of credit ratings for regulatory purposes and securitisation. FCA emphasises that in these areas, it expects firms and other regulated entities to undertake reasonable steps to comply with the changes to their regulatory obligations by exit day, adding that it will act proportionately and, in the event that the UK leaves the EU without an implementation period, FCA will not take a strict liability approach and does not intend to take enforcement action against firms and other regulated entities for not meeting all requirements straight away, where there is evidence they have taken reasonable steps to prepare to meet the new obligations by exit day. The full publication can be accessed here.

“The Treasury has published legislation to give the UK financial regulators a power to make transitional provisions connected to changes to financial services legislation. If the UK leaves the EU without an agreement, we intend to use this power broadly to ensure that firms and other regulated entities can generally continue to comply with their regulatory obligations as they did before exit day for a temporary period.

There are some areas where it would not be consistent with our statutory objectives to grant transitional relief. In these areas only, we expect firms and other regulated persons to begin preparing to comply with changed obligations now [...] refer to the Annex of this statement for more information.


“In the following areas, we expect firms and other regulated entities to begin preparing to comply with Brexit-related changes to their UK regulatory obligations:

  • MiFID II transaction reporting – the UK’s transaction reporting regime under MiFID II will change as a result of Brexit, including connected obligations such as the requirement to submit financial reference data. Find out more on our webpage FCA FIRDS and transaction reporting. These changes will apply from exit day. This includes EEA firms entering the temporary permissions regime, as well as UK-approved reporting mechanisms (ARMs) that submit reports on behalf of firms. Receiving complete and accurate transaction reports is crucial to our ability to ensure market oversight and integrity.
  • EMIR reporting obligations – from exit day, all firms and central counterparties (CCPs) who enter into derivatives transactions in scope of EMIR will be required to report into a UK-registered trade repository (TR). This is crucial to enable TRs to fulfil their reporting obligations to the FCA (or the Bank of England in the case of CCPs), enabling oversight of derivative markets and effective monitoring of systemic risk.
  • Issuer rules – EEA entities that have securities admitted to trading or traded on UK markets will be required to submit information to the FCA and disclose certain information to the market from exit. This is integral to our ability to ensure the effective functioning of markets, protect consumers, and enhancing market integrity.
  • Contractual recognition of bail-in – to safeguard resolvability, firms will need to include contractual recognition of bail-in in terms in all new or materially-amended liabilities governed by the law of an EEA State, with the exception of unsecured liabilities that are not debt instruments.
  • Short selling notifications – any firm wishing to use the exemption for market-making activities under the Short Selling Regulation will be required to join a UK trading venue and notify us of their intention to use the market maker exemption 30 days ahead of their intended use. Any notifications already made to the FCA will remain valid post-exit. This is essential to our ability to monitor short selling activity and ensure market integrity.
  • Use of credit ratings for regulatory purposes – after exit, all ratings will need to be issued or endorsed by a credit ratings agency (CRA) established in the UK and registered with the FCA for them to be eligible for regulatory use. Users of credit ratings should therefore take steps to ensure they are operationally ready to use credit ratings issued or endorsed by FCA-registered CRAs after exit day. To help provide some continuity to users of credit ratings, ratings issued or endorsed in the EU before exit by a CRA with an affiliate registered or currently applying for registration with the FCA, may be used for regulatory purposes in the UK for up to one year after exit.
  • Securitisation – UK originators or sponsors will need to direct notifications to the FCA from exit day for UK securitisations they wish to be considered simple, transparent, and standardised (STS) under the Securitisation Regulation. UK originators, sponsors, or securitisation special purpose entities (SSPEs) choosing to make use of a third-party verifier (TPV) to assess compliance with the STS criteria, may only use a TPV established in the UK and authorised by the FCA.”


The regulators have announced that two MoUs have been agreed which cover cooperation and exchange of information in the event of a "no deal" Brexit. The first of these is a multilateral MoU with EU and EEA national competent authorities covering supervisory cooperation, enforcement and information exchange. ESMA states that this MoU "will allow them to share information relating to, amongst others, market surveillance, investment services and asset management activities. This, in turn, will allow certain activities, such as fund manager outsourcing and delegation, to continue to be carried out by UK based entities on behalf of counterparties based in the EEA". The second MoU, between FCA and ESMA concerns the supervision of credit rating agencies and trade repositories. Texts of the MoUs have not been published. The full publication can be accessed here. The FCA statement can be accessed here and the ESMA statement here.

Andrew Bailey, Chief Executive of the Financial Conduct Authority, said:

"I am pleased we have been able to agree these MoUs. They will allow for continued close cooperation in the event the UK leaves the EU without an agreement."

"They should also minimise the potential for disruption, which we know is particularly important for the investment management sector, Credit Rating Agencies and Trade Repositories."

"These MoUs will support cross border supervision of firms and allow us to share information with our EU counterparts.”

3. FCA/ESMA: Requirements for UK trade repositories and reporting counterparties in the event of a "no deal" Brexit

FCA's webpage sets out a statement on the requirements, noting ESMA's separate announcement (second link below). FCA intends to publish detailed guidance relating to the UK regime shortly. The publication can be accessed here.

"Any TR wishing to offer its services in the UK will need to be registered with, or recognised by us.

The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 provide:

  • a conversion regime for UK based TRs who have an ESMA registration and want to keep a presence in the UK
  • a temporary registration regime for UK legal entities that are part of the same group as a TR with an existing ESMA registration.

The Regulations also give us powers to process advance applications to ensure a smooth transition to the new regime for UK TRs. We are now in the advanced stages of preparations with TRs who wish to offer services under the UK regime. This will ensure UK TRs are registered and operational from exit day."

4. HoC European Scrutiny Committee: 52nd Report of Session 2017-19

Section 4 of the report looks at EU contingency planning in a "no deal" scenario and details the latest ministerial responses to the Committee’s specific concerns. The full report can be accessed here.

“The European Commission’s recent Communications on the EU’s preparations for a ‘no deal’ Brexit are therefore a stark reminder of the consequences, especially at ports, on 30 March. Despite the UK’s requests, and in some cases unilateral action, in many areas the EU is planning no contingency measures at all to avoid trade and transport disruption. Instead the UK will abruptly go from ‘EU member’ to ‘third country’, without anything resembling the transition period and separation provisions contained in the draft Withdrawal Agreement. The EU has said it intends to impose tariffs, import VAT and excise duty, as well as regulatory controls, at the border from ‘day one’. Although to what extent it will force Ireland to do so at the land border remains unclear, the French, Dutch and Belgian Governments have all said they will be required to enforce EU ‘third country’ rules against UK goods from 30 March 2019 if there is no transition.

Even where the Commission has now proposed specific ‘no deal’ contingency measures, they are limited in time and scope, often binding the UK to continued adherence to EU rules if it wants to benefit from them at all. Moreover, many of the EU’s most important emergency initiatives are yet to clear its legislative processes— for example in the areas of aviation and road transport. There is thus no certainty or stability on the basis of which businesses and citizens can plan trade with, or transport to, the EU in less than three months.


Moreover, the Government’s lack of candour about its Brexit preparations and the areas where unilateral action will be insufficient is disappointing. A number of crucial Bills have not received Royal Assent, and many of the Statutory Instruments that need to be made under the 2018 Withdrawal Act are yet to make it onto the Statute Book. It is noteworthy in this respect that even at this late stage, the Government’s Explanatory Memorandum can only offer assurances that Departments are working to “make sure that the preparations for exit from, […] the EU are on track”. This falls far short of a guarantee that such preparations, where the UK can make them unilaterally, will be completed by the end of March.


A new complication would be that any new UK-EU agreements negotiated after March 2019, even if they replicate the substance of the Withdrawal Agreement in a given area, would probably need a different legal basis on the EU side. Article 50, which gives the EU an unusually wide exclusive competence to enter into agreements with a future non-Member State, would have ceased to have effect. Instead, new agreement(s) would now need to be agreed in accordance with Art 218 TFEU and in line with relevant EU sectoral law and policy. This raises the prospect of some postexit deals with the UK requiring not only approval by a qualified majority of Member States and the European Parliament (as is the case for the Withdrawal Agreement). Depending on the substance of the new arrangements, they may require unanimity among Member States and—in certain cases—even ratification by the EU’s national and regional parliaments.”

5. ESMA: Prospectus Directive/Transparency Directive - "no-deal" Brexit

ESMA has published three Q&As regarding these Directives in the context of a "no deal" Brexit. The full publication can be accessed here.

“The Q&As provide the following clarifications in the event of a no-deal Brexit:

  • When issuers of equity securities and non-equity securities below 1,000 EUR who currently have the UK as their PD home Member State choose a new home Member State, they should choose between the EU27 Member States / EEA EFTA States in which they have activities after 29 March 2019 (either offers/admissions made after the withdrawal or admissions made before the withdrawal which continue after the withdrawal).
  • Issuers admitted to trading on a regulated market within EU27 / EEA EFTA who currently have the UK as their TD home Member State should choose and disclose their new home Member State without delay following 29 March 2019.
  • As the UK will be a third country, prospectuses and supplements approved by the UK FCA before 29 March 2019 cannot be used in EU27 / EEA EFTA after a no-deal Brexit.”

6. TSC: The work of the FCA

TSC has published a transcript of the hearing held on 15 January 2019 attended by Andrew Bailey and Charles Randell. Specific topics under discussion include: Brexit preparations; FOS; the Bribery Act; retail banking; mortgages and risks in relation to private polling data. The full publication can be accessed here.


“Moving on to Brexit, statutory instruments and the powers of regulators, should the worst happen and we leave with no deal at all when we reach 29 March, the Treasury published a paper last year on temporary transitional powers to be exercised by UK regulators. We are now expecting that to reach us in the form of legislation. Perhaps you can outline the discussions you have had with the Treasury about the powers you would need in the event of a no-deal Brexit and any audit you have done of additional powers you think you might need in that scenario.”

Andrew Bailey:

“In our world, we have on the latest count 62 statutory instruments in varying stages of going through, which is what we tend to call on-shoring the EU. Of those, 43 have now been laid in Parliament, 16 have been made, another 10 have been published in draft and we have about nine to go. About 50 of those are the Treasury’s and about 12 of them are other Departments’. The whole purpose of that, in the event of the outcome you described, is that by the end of March we have translated the EU rulebook into UK law. That has been done on the very strict basis that the only changes we can make are what are called the “inoperables”, i.e. where it would not work if we just did a literal write across. It is important for Parliament, I know, that the controls and discipline over what is an inoperable are strict, so that we are not delving in and doing a few things that we fancy doing.

That leads to another issue, though. Given the very short timetables, we are not consulting for as long as we normally do. In fact, we are not consulting much at all at the moment, although we and the Treasury are involving the market and have had a lot of very helpful input from firms in the market. There is a second issue. Where we have had to change things because of the so-called inoperables, quite a lot of those are very straightforward to implement for firms on the spot. Some of them are not because they involve systems changes. The question then is this: if the change cannot be made effectively in practice at the end of March, what do we do? The proposed solution, which you have probably been written to about—and I will slightly caricature this point—is to say, although continuing the EU arrangement is inoperable, the most realistic thing to do is to lock down what I call the 29 March treatment, say we would have the power to override the inoperable for a period of time, and say, “It is going to take this long to do the systems changes or whatever, so in the intervening period firms should continue doing what they were doing on 29 March”. I realise that that sounds quite tame; put it that way. It is quite a big intervention. It is over to you in a way, but we want the transparency and accountability of the use of this power to be as sensible as it ought to be. I would only ask, because a lot of this is in the wholesale market, an area where we have to act quickly, that it be ex post rather than ex ante. I am more than happy for it to be as accountable and transparent to you as you would like. As you discuss and debate it, I am very happy to agree and discuss whatever accountability and transparency you as Parliament think would be appropriate in the use of that power, should we have to do it.”

7. ECB: Speech by Sabine Lautenschläger: A supervisory perspective on 2019 and beyond

Text of this speech, given on 17 January 2019 follows, in which Sabine Lautenschläger discusses aspects of: Brexit and supervision in the light of technological change. The full speech can be accessed here.

“I have concerns when it comes to the rest, though. ECB Banking Supervision does not cover third-country branches or services provided directly from third countries – even if they are material.

It is true, of course, that third-country branches are still subject to national rules and supervision. But this leaves European banking supervision without a full picture of what banks are doing and what risks they pose. Banks, on the other hand, can seize the opportunity and engage in regulatory arbitrage. They could, for instance, circumvent our expectations on empty shells by shifting activities to third-country branches or by providing cross-border services from third countries. Just imagine a large third-country bank, providing cross-border services in part directly, in part through small subsidiaries and mostly via third-country branches across the euro area. No local supervisor would have a full overview of the activities conducted in the euro area, nor the capacity or powers to adequately react to the aggregate risk in the euro area.”

8. CJEU Opinion 1/17: Opinion by Advocate General Bot

On 29 January 2019 Advocate General Bot has delivered his opinion in the CJEU Opinion 1/17 which addresses the issue whether the investment arbitration provisions in CETA are compatible with EU law. The full opinion can be accessed here.

“In today’s Opinion, Advocate General Yves Bot holds that the mechanism for the settlement of disputes is compatible with the EU Treaty, the FEU Treaty and the Charter of Fundamental Rights of the European Union.

First, the Advocate General takes the view that the agreement does not adversely affect the autonomy of EU law and does not affect the principle that the Court of Justice has exclusive jurisdiction over the definitive interpretation of EU law.


The Advocate General considers that the safeguards surrounding the establishment of the dispute settlement mechanism are sufficient. The Tribunal has a narrowly circumscribed jurisdiction, namely, in the event of a breach of the relevant provisions of that agreement by one of the Parties, granting compensation to the investors suffering loss. The Tribunal does not have the power to order the annulment of a measure which it deems contrary to the agreement or to require that it be brought into line with that agreement. Furthermore, when considering EU law, the Tribunal is bound by the interpretation given by the Court and cannot impose a binding interpretation of that law within the EU legal order. In addition, the Joint Committee can adopt binding interpretations of the agreement and an appeal procedure is established.


Second, the agreement does not infringe the general principle of equal treatment in respect of access to the dispute settlement mechanism. The situation of Canadian investors who invest in the EU is not comparable with the situation of European investors who invest within their own economic area. Only the investors of each Party who invest in the territory of the other Party are in comparable situations.

Third, procedural safeguards ensure a sufficient level of protection of the right of access to an independent and impartial tribunal, a right enshrined in Article 47 of the Charter. The mechanism provided for is merely an alternative method of dispute resolution relating to the application of the free trade agreement which complements the remedies offered by the Parties.”

9. European Commission: No deal planning - limited exemptions for the Bank of England

On 30 January 2019 the European Commission has published four draft delegated regulations which would exempt the Bank of England from certain reporting requirements in OTC Derivative

Transactions, Debt Management Office, post-trade transparency requirements and Securities Financing Transaction Regulation. The list can be accessed here.

10. CSSF: Press release 19/05: Brexit: Delegation of invetment management and temporary permission regimes

The Luxembourg regulator issued a press release explaining the situation of delegation of investment management firms post Brexit. The full press release can be accessed here.

“The CSSF would like to remind that legal provisions in Luxembourg fund legislation permit the delegation of investment management/portfolio management and/or risk management activities to undertakings in countries outside the European Union ("third countries") under specific conditions. In the particular context of a "no deal" Brexit, legislation, in particular Article 110 of the Law of 17 December 2010 on undertakings for collective investments, Article 18 of the Law of 12 July 2013 on alternative investment fund managers and Article 42b of the Law dated 13 February 2007 on specialised investment funds, allow for such delegations to undertakings in the United Kingdom, which would gain the status of a third country in case of a “no deal” Brexit, provided that (i) these undertakings are authorised or registered for the purpose of asset management, (ii) are subject to prudential supervision and that (iii) cooperation between the UK FCA as supervisory authority of these undertakings and the CSSF is ensured. The CSSF endeavours that the required cooperation between the UK FCA and the CSSF shall be in place on 29 March 2019 in the event of a “no deal” Brexit. On this basis, delegation of investment management/portfolio management and/or risk management to UK undertakings shall continue to be possible without any disruption post-Brexit, under the condition that the UK delegatee continues to fulfil all applicable requirements.”

Other publications from the RegZone Brexit news feed

HoL Library briefing: Leaving the EU: recent developments and debates under section 13 of the European Union (Withdrawal) Act 2018

This briefing summarises recent developments in relation to Brexit, focusing on debates that took place in HoL on 28 January 2019 and in HoC on 29 January 2019 under s13 of the European Union (Withdrawal) Act 2018. The briefing paper can be accessed here.

FMLC: Brexit and emissions allowances

FMLC's paper discusses issues of legal uncertainty arising in the context of emissions allowances, including the effect of a hard Brexit on existing contracts relating to OTC transactions and regulatory issues. The full publication can be accessed here.

HMT: Financial sanctions – general guidance

HMT has published guidance in relation to secondary legislation under the Sanctions and Anti-Money Laundering Act 2018 (which will not come into force on exit day unless there is a "no deal" Brexit). The full publication can be accessed here.

Department for Exiting the EU: Ministerial Forum communiqué

This communiqué summarises the seventh meeting of the Ministerial Forum (EU Negotiations) held on 31 January 2019. This communiqué can be accessed here.

The Insolvency (Amendment) (EU Exit) Regulations 2019/146

This Brexit-related SI has now been made. This SI can be accessed here.

EC: Speeches by Jean-Claude Juncker and Michel Barnier

The EC has published the texts of speeches made at the Plenary session of the European Parliament on 30 January 2019. The full speech can be accessed here.

FCA: List of EEA market operators applying to become a recognised overseas investment exchange

FCA has published a list of the EEA market operators which have applied to it for ROIE or expressed a formal intention to do so and have consented to be included on this published list. The full publication can be accessed here.

Draft Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019

Draft Regulations laid before Parliament under paragraphs 1 and 12 of Schedule 7 to the European Union (Withdrawal) Act 2018, for approval by resolution of each House of Parliament. The draft SI can be accessed here.

Financial Services (Implementation of Legislation) Bill

The report stage of the Bill took place on 29 January 2019 and a new version of the Bill has now been published. The third reading is scheduled for 6 February 2019. The draft bill can be accessed here.

HMT Speech by Philip Hammond

Text of Philip Hammond's speech on 30 January 2019 follows. Topics include Brexit and fintech. Tehf ull speech can be accessed here.

FMLC: Draft Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019

FMLC has published a letter to HMT drawing attention to an issue of legal uncertainty in relation to the updated financial promotion rules. The full letter can be accessed here.

FMLC: Draft Insolvency (Amendment) (EU Exit) Regulations 2018

FMLC has published a letter to the Insolvency Service drawing attention to issues of legal uncertainty in relation to the SI. The full letter can be accessed here.

EC: "No deal" contingency measures

The EC has adopted a final set of “no-deal” contingency measures for Erasmus+ students, social security coordination rules and the EU budget noting, with regard to the last of these that "UK beneficiaries of EU funding would continue to receive payments under their current contracts, provided that the United Kingdom continues to honour its financial obligations under the EU budget". The full publication can be accessed here.

PRA: Speech by Sam Woods: Seven awkward questions

Text of this speech, given on 17 January 2019 follows in which Sam Woods considers aspects of PRA's secondary competition objectives, including with regard to Brexit, fintech and Solvency II. The full speech can be accessed here.

Department for Exiting the EU: Data protection and Brexit - is your organisation prepared?

This webpage sets out guidance that is intended to help businesses and charities continue to comply with data protection law after 29 March 2019. The full publication can be accessed here.

Department for Exiting the EU: Joint Ministerial Council (Gibraltar EU Negotiations)

This press release provides a note on a meeting held on 24 January 2019 between the Department for Exiting the EU and ministers from the Gibraltar government. The full publication can be accessed here.

TSC: The future of the UK’s financial services

TSC's inquiry will examine what the Government’s financial services priorities should be when it negotiates the UK’s future trading relationship with the EU and third countries. Written submissions are invited. The full publication can be accessed here.

Exiting the EU Committee: Response to the Commons on 15 January 2019

On 28 January, the Exiting the EU Committee publishes a full response to the Commons vote on 15 January 2019 to reject the Prime Minister’s Withdrawal Agreement and Political Declaration on the

Future Framework for Relations between the EU and the UK. The full publication 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.