FCA issues MiFID passport proposals for a ‘no implementation period’ Brexit


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UK financial regulator Financial Conduct Authority (FCA) has published two consultation papers, setting out its proposals in the event the UK leaves the European Union on March 29, 2019 without an implementation period – i.e., a so-called ‘Hard Brexit’. It also set out its approach to the regulation of Credit Ratings Agencies, Trade Repositories and Data Reporting Services Providers.

Both consultations are open until December 7, 2018, with the FCA expected to issue its final rules during Q1 2019. Responses can be submitted via the FCA’s online form, by email or in writing. The FCA said that it is keen to hear from the widest possible range of stakeholders across sectors, including industry bodies and consumer groups.

The FCA had earlier stated that its Hard-Brexit plan was going to revolve around temporary passports and cliff edge risks. But while the FCA has clearly indicated its openness to allowing EU licensed firms (like Forex brokers) to continue doing business with UK clients post-Brexit via a temporary passport regime, so far its EU counterpart ESMA has towed a much harsher line, indicating that a Hard Brexit means no more access for UK-FCA licensed firms into continental Europe.

The two consultation papers focus on amendments to the FCA Handbook and Binding Technical Standards which contain detailed EU rules which the FCA will have responsibility for after exit resulting from leaving the EU and the FCA’s approach after Brexit to EU non-legislative material, and the Temporary Permissions Regime, which will allow EEA firms and funds passporting into the UK to continue operating here for a limited period after Brexit while seeking full UK authorisation.

The FCA said that it is working to ensure as smooth a transition as possible as the UK prepares to leave the European Union and these consultations are an important part of this work.

Nausicaa Delfas, Executive Director of International at the FCA said:

The FCA is planning to be ready for a range of scenarios. Today we are publishing two consultation papers to ensure that in the event the UK leaves the EU in March 2019 without an implementation period, we have a robust regulatory regime from day one, and to ensure a smooth transition for EEA firms and funds currently passporting into the UK.

This is consistent with our aim to provide certainty and confidence for firms operating in the UK. We welcome engagement from across the sector, as we continue with our preparations for Brexit.

Temporary Permissions Regime

At present, certain European Economic Area (EEA) firms can provide financial services in or into the UK, and EEA investment funds can be marketed in the UK, through a passport. The paper sets out how EEA firms and investment funds can continue to carry on regulated business in or into the UK for a limited period after Brexit while seeking full authorisation in the UK. The regime will only be available from 29 March 2019 if the UK leaves the EU without an implementation period.

The consultation paper sets out details of how the FCA expects the regime to work in practice, how firms and investment funds can enter into it, how long it will operate for, and the rules it proposes that should apply to firms and investment funds while they are part of it.

The FCA has taken a proportionate approach to enable firms to comply with its requirements from day one.  Overall, the FCA’s aim is to preserve existing arrangements as far as possible for both firms and consumers. In some cases, firms may be required to join additional schemes run by UK institutions to protect UK consumers, for example the Financial Services Compensation Scheme (FSCS).

This consultation paper is relevant to those EEA firms and investment funds currently doing business in or into the UK, or being marketed in the UK, through a passport. The FCA would like to hear from these firms and funds managers passporting into the UK who intend to use the Temporary Permissions Regime.

Amendments to Handbook and Binding Technical Standards (BTS)

Parliament has passed the European Union (Withdrawal) Act 2018 to prepare the UK’s legal framework for exiting the EU. It will convert existing directly applicable EU law at the point of exit into UK law, preserve existing UK laws which implement EU obligations, and give the Government powers to amend that law so it functions effectively when the UK leaves the EU. As part of these preparations, the Treasury intends to give financial services regulators, including the FCA, responsibility for amending EU binding technical standards (BTS), which are detailed EU rules, for exit day.

This consultation paper proposes changes that may need to be made to the FCA Handbook and BTS, whilst setting out the FCA’s approach after Brexit to EU non-legislative material. The majority of the changes are consequential to those proposed by the Government under the European Union (Withdrawal) Act 2018. For example, changes include removing references to EU institutions, such as the European Commission or the European Supervisory Authorities, which will be replaced with the relevant UK equivalent. In a small number of cases, the FCA is proposing other types of changes that reflect the UK’s new position outside of the EU. Feedback is invited on the approach taken to all of the amendments. The FCA is not proposing policy changes unrelated to Brexit.

The FCA particularly welcomes feedback on whether compliance with changes to regulatory requirements by exit day would be a particular challenge for firms. The FCA does not however expect firms and others subject to our proposals to prepare now to implement any new requirements.

The two consultation papers can be seen here:

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FCA issues MiFID passport proposals for a 'no implementation period' Brexit

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