Brexit update for financial services firms - week ending 22nd February 2019


EIOPA repeats previous analysis which shows that many UK insurers with substantial cross-border business (into the EU27/EEA-3) are implementing contingency plans for a no deal scenario. The remaining cross-border business (which involves over 100 UK insurers) is mainly short term, low premium, non-life business.

ESMA announced that it had completed the process for ND Regime recognition of the three UK central counterparties (CCPs) – LCH Limited, ICE Clear Europe Limited and LME Clear Limited (see Document 2 below). They will now be able to provide services in the European Union for a 12 month period after the UK has left the EU – see commentary in previous updates. The recognition of the UK’s central securities depository (Euroclear UK and Ireland Ltd) is anticipated but not complete as of yet.

A recent speech on the ND Regime in banking was published (see Document 3 below). Joachim Wuermeling, a member of the Executive Board of the Deutsche Bundesbank, looked at the question of German banks (and particularly those established/owned by UK groups or with substantial UK business) and their UK branches (which would require UK authorisation after the temporary permission regime):

‘For German banks, unlike other SSM banks, there is no formal requirement for the home supervisor to approve a third country branch. However, given the aim of establishing a level playing field among all current and future SSM banks, you should expect the SSM to address certain requirements via other supervisory measures where necessary to ensure that the future set-up of the new third country branches is in line with SSM expectations.

This means that the SSM will not accept empty shells, neither from incoming nor from outgoing banks. A third country branch will not be allowed to perform central functions for its SSM domiciled group. And any outsourcing must not hamper the efficient and effective supervision of SSM entities.

Not all SSM banks are currently fully compliant with the SSM’s respective supervisory expectations. In particular, all banks must ensure that they have relocated sufficient staff to the EU27 entities.

EU business must be booked from within the EU27. This will require significant asset transfers in several cases. Sufficient trading and risk-management staff as well as technical infrastructure are needed on site at the EU27 entities to ensure adequate risk management.’

The HoL EU Financial Affairs Sub-Committee published the transcript of its one-off evidence session with witnesses from the LCH Group and FIA on 13 February on the ‘The future of Brexit and CCPs’ (see Document 1 below). This confirmed that,

  • the ND Regime for CCPs on exit is now satisfactory but only covers CCPs, the problem of contract continuity remains for other market participants. In this context, reference is made to domestic legislation by Luxembourg and Ireland which provided an exemption similar to the UK’s overseas persons exemption, which may be helpful.
  • the issue of trading venue recognition (see previous updates) remains a serious problem for market participants including end users in the EU-27.
  • the prospect of ESMA oversight of UK CCPs under EMIR 2.2 is not a cause of concern; UK CCPs are already subject to oversight by other foreign regulators.

During the week the UK government (“HMG”) admitted that it had not been able to ‘roll-over’ most of the current EU free trade agreements (“FTAs”) for the ND Regime and this included some of the big trade deals such as those with Japan and Turkey. UK firms would therefore cease to benefit from these agreements after a no-deal exit on 29th March.

HMG has also been slow to publish the full text of the agreements that it has concluded and announced for the ND Regime. After some delay HMG has finally published the text of the 2018 Swiss-UK agreement on branches of non-life insurers (see Document 7 below). This agreement is very narrow in scope and, in this case, the text is very close to that of the Swiss-EU insurance agreement. HMG had also made much of its success in concluding the broader agreement with Switzerland to roll-over EU trading arrangements. It has now published the text of the new FTA and this does not roll-over all aspects of the EU/Swiss trade agreements. It is difficult for firms to get a clear understanding as to how the ND Regime will operate in third (non-EU/EEA) countries. As we have explored in previous updates, in the FS sector UK firms (and those doing business with them) are currently covered by many DRC measures under the regulatory regime of third countries (which in most cases are not established under FTAs). These may cease to apply under the ND Regime if the measures are only applicable to firms from EU states. (Stop press: It was announced on 25th February that UK and US regulators had agreed DRC arrangements for the ND Regime in the derivatives market. Further detail will be provided in our next update.)


The Sub-Committee held a one-off evidence session with witnesses from the LCH Group and FIA on 13 February 2019. A link to the transcript follows. The full script can be accessed here.

Lord Butler of Brockwell:

In saying that the temporary equivalence regime has dealt with the immediate problems, do you make no distinction between a deal and no-deal situation?

Michael Voisin:

The EU’s temporary equivalence regime is on the basis of no deal. If there is a deal, there will be a transitional period and the status quo will prevail. In both events, the worst-case scenario is avoided because there is a temporary equivalence regime in no deal. The UK has a temporary recognition regime flowing the other way for EU 27 CCPs. Again, the worst-case scenarios are avoided from that perspective.


Contractual continuity is not really a concern for CCPs; their contracts can continue to be managed and closed out through their clearing members. The question is to do with end-users who may have a very large volume of cleared derivatives through, say, a clearing broker in the UK, and after Brexit might have to trade through a different clearing broker in the EU 27. They may have difficulty trading between those two portfolios, depending on the regulatory regime in place at the time. It is very complex.

It is partly governed by MiFID II and MiFIR, the new regulations relating to the provision of investment services in the EU, but it is also governed by exemptions available in each member state. Each member state is considering its own exemptions at the moment as part of its Brexit contingency planning, so it is not possible to speak with a great deal of certainty. Luxembourg and Ireland, for example, already have in place arrangements similar to the UK overseas persons exemptions, which probably allow the provision of services from the UK to end-users.


ESMA has announced that, in the event of a no-deal Brexit, LCH Limited, ICE Clear Europe Limited and LME Clear Limited will be recognised to provide their services in the EU. It is also noted that ESMA had previously indicated that it was supporting continued access to the UK Central Securities Depository and that the recognition process is still ongoing. The full statement can be accessed here.


BIS has published the text of this speech by Joachim Wuermeling, a member of the Executive Board of the Deutsche Bundesbank, given on 14 February 2019, in which he discusses aspects of the post-Brexit temporary permissions regime in relation to banks. The full speech can be accessed here.

Split of responsibilities between PRA and SSM

Making the transition from the EU28 to the EU27 as smooth as possible for the financial sector will require close cooperation between the SSM and the PRA. The details of such a split of responsibilities are currently being negotiated.

I am convinced that London will remain an important financial centre after Brexit, and I have no doubt that the financial ties between London and the EU27 will remain strong – all of you will work to ensure that. Close cooperation and a continued dialogue between the supervisory authorities will therefore be necessary, especially in times of crisis.

I believe that the SSM and the PRA should ensure information sharing and reciprocal consultation while respecting independent supervisory decision making in each jurisdiction.

Now I’m sure you are wondering what a split of responsibilities would mean for UK branches of German (and other SSM) banks. The truth is: we can’t really tell just yet.

We’ll have to wait for the final outcome of the negotiations between supervisory authorities. As I have said, these negotiations are already under way, and I am optimistic that they will be concluded soon. Overall, our goal must be to achieve an adequate level of information sharing and joint supervisory work that does not lead to an increased workload for all parties involved.

Certainly, it will not be possible to develop a one-size-fits-all solution. The agreement on a split of responsibilities will need to leave room for accommodating specific cases.

On the basis of the agreement, the PRA plans to process applications for third country branches.”


EIOPA has published a document containing nine recommendations addressed to national competent authorities and which provide guidance on the treatment of UK insurance undertakings and distributors with regard to cross-border services in the EU in the event of a no-deal Brexit. The recommendations cover, amongst other matters, the authorisation of third country-branches, the lapse of authorisation, the cooperation between the national competent authorities, communication to policyholders and beneficiaries to distribution activities. They will apply as of the date following that on which the EU's acquis ceases to apply to and in the UK. The press release can be accessed here and the full publication here.

Press release:

“In particular, the following three Recommendations are to be highlighted:

  • Orderly run-off: Without prejudice to policyholder rights to exercise an option or right in an existing insurance contract to realise their pension benefits, the NCAs should prevent that UK undertakings conclude new insurance contracts or establish, renew, extend, increase or resume insurance cover under the existing insurance contracts in their jurisdiction as long as they are not authorised for such insurance activities under Union law.
  • Portfolio transfer: Provided that it was initiated before the withdrawal date, the NCAs should allow the finalisation of portfolio transfer from UK insurance undertakings to EU27 insurance undertakings.
  • Change in the habitual residence or establishment of the policyholder: If a policyholder with habitual residence or, in the case of a legal person, place of establishment in the United Kingdom concluded a life insurance contract with a UK insurance undertaking and afterwards the policyholder changed its habitual residence of place of establishment to a EU27 Member State, the NCAs should take into account in the supervisory review that the insurance contract was concluded in the United Kingdom and the UK insurance undertaking did not provide cross-border services for the EU27 for this contract.

Enhanced cooperation between NCAs is necessary to address issues arising from unauthorised cross-border insurance. EIOPA will facilitate the necessary cooperation through the establishment of cooperation platforms. UK insurance undertakings should disclose the consequences for their rights and obligations to the policyholders and beneficiaries of contracts affected by the United Kingdom’s withdrawal.

Guidance on the application of the legal framework for insurance intermediation regarding UK distributors after the withdrawal of the United Kingdom is also part of the Recommendations.”


HMT has published a revised policy note, which outlines the Bill’s purpose (to implement in-flight EU legislation in a no deal scenario) and provides detail on the EU legislative proposals to which it would apply. The policy note can be accessed here.


Sections 1 and 9 of the report consider aspects of consumer protection (including with regard to the Consumer Rights Directive and the Unfair Contract Terms Directive) post-Brexit and the Pan European Pension Product respectively. The first matter is still under scrutiny by the Committee. The full report can be accessed here.

“The direct impact of Delegated Acts under the PEPP Regulation is likely to be limited, given the probable lack of appetite for the product on the UK market. However, it is merely one facet of the much larger accountability issue created by the proposed transition period. During that time, the UK would be subject to EU legislation debated and approved without the Government having voting or representation rights in EU bodies. Continued scrutiny of new EU policy by Parliament would therefore remain an important principle for the duration of any transitional period, to ensure the constraints imposed on the UK’s legislative autonomy by new European legislation during that period can be taken into account.”


The UK Government have published the text of the Swiss-UK Insurance agreement that can be accessed here. For comparison, the text of the Swiss-EU Insurance agreement can be accessed here.

Other publications from the RegZone Brexit news feed

The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2019/335

This SI has now been made and can be accessed here.

The Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019/341

This SI has now been made and can be accessed here.

The Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019/337

This SI has now been made and can be accessed here.

FCA: Primary Market Bulletin 21

The latest edition of the bulletin advises market makers and issuers of new regulatory obligations that will need to be implemented for the Short Selling Regulation and MAR in the event of a no-deal Brexit. The publication can be accessed here.

HMT: EMIR pension scheme arrangements clearing exemption

This statement explains how HMT plans to bring an exemption for pension scheme arrangements, which is being negotiated in the EU in EMIR REFIT, into UK law. HMT notes that it intends to incorporate a temporary clearing exemption for both UK and EEA pension scheme arrangements. The statement can be accessed here.

FCA: Statement on onshoring ESMA’s temporary intervention measures on retail CFD and binary options products

The FCA's press release notes that ESMA's temporary intervention measures prohibiting binary options and restricting CFDs sold to retail clients will become part of UK domestic law on exit day as part of the EU (Withdrawal) Act and emphasises that UK firms are required to comply with ESMA’s measures until they expire in April 2019. The FCA intends to publish feedback and the final rules consulted on in CP18/37 and CP18/38 in March 2019 for binary options, and April 2019 for CFDs and CFD-like options. However, if it is unable to finalise its domestic approach prior to ESMA’s existing interventions ceasing to have effect in the UK, it will consider adopting temporary product intervention measures to replicate ESMA’s. The FCA’s statement can be accessed here.

The Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019/328

This SI has now been made and can be accessed here.

HoL: Further Article 50 discussions with the EU

On 27 February 2019, HoL is due to debate the Government’s further discussions with the EU. This HoL library briefing is an update of a briefing published with regard to a debate held on 13 February 2019. The publication can be accessed here.

The Venture Capital Funds (Amendment) (EU Exit) Regulations 2019/333

This SI has now been made and can be accessed here.

The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019/325

This SI has now been made and can be accessed here.

EC: Joint statement by Jean-Claude Juncker and Theresa May

Text of a joint statement made on 20 February 2019 follows. The full text can be accessed here.

The Market Abuse (Amendment) (EU Exit) Regulations 2019/310

This SI has now been made and can be accessed here.

TSC: The UK's economic relationship with the EU

A transcript of the session held on 29 January 2019 attended by John Glen (HMT), Andrew Bailey (FCA) and Sam Woods (PRA) follows. Topics include: Brexit SIs; FSCS and MiFID. The full transcript can be accessed here.

HMT: Asset Management Taskforce

In this press release, HMT has announced the appointment of five new senior executives to the Government’s Asset Management Taskforce. It is noted that John Glen has now asked the Taskforce to consider new international opportunities that the UK’s asset management industry could seize after Brexit, and to explore ways to promote responsible investment. The publication can be accessed here.

HoC: European Union (Withdrawal) (No. 4) Bill

This HoC library briefing provides information on Yvette Cooper's Private Member's bill which would create a legal mechanism whereby HoC can instruct the Prime Minister to ask the European Council for an extension to Article 50 in the absence of an approval resolution for an exit deal from the EU. The publication can be accessed here.

ESMA: 2019 Supervision Work Programme/2018 Annual Report

ESMA has highlighted the following areas as its main areas of focus: supervision of trade repositories; credit rating agencies and the monitoring of third-country market infrastructures such as third-country central clearing counterparties and third-country central securities depositories. The full report can be accessed here.

The Interchange Fee (Amendment) (EU Exit) Regulations 2019/284

This SI has now been made and 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.