With the latest uncertainty in Brexit and October fast approaching, banks need to take stock of their preparation. Firms have carried out significant work to ensure that they are able to continue to operate post Brexit regardless of the outcome. However, once the nature of Brexit is known, there will be further work required to comply with the new regulatory and legal framework as well as changes to processes, data and technology systems.
Passporting ceases on exit or at the end of a transition period if a deal is agreed
- European Economic Area (EEA) firms that could provide services into the UK through passporting will need to seek authorization to continue after exit day. Similarly, EEA Financial Market Infrastructures (FMIs) will need to seek recognition. Her Majesty’s (HM) Treasury has brought forward legislation that will allow EEA firms, FMIs, and funds to continue their activities in the UK for three years after exit day before requiring full authorization or recognition. Hence, EEA firms and FMIs may plan on the assumption that full Prudential Regulation Authority (PRA) authorization or bank recognition will only be needed by the end of the implementation period. In the UK, this is irrespective of a deal, whereas in the EU, if a deal is struck, activities may continue for two years, but passporting will terminate immediately without a deal.
- As the UK leaves the EU’s single market, passporting rights into the UK will cease to exist. The Financial Services and Markets Act (FSMA) is being amended so that EEA firms, Treaty firms, operators and depositaries of Undertakings for Collective Investment in Transferable Securities (UCITS) and Alternative Investment Fund Managers (AIFM) qualifiers will no longer qualify as authorized persons.
Post-Brexit, the FCA Handbook will get updated to reflect the transposition of EU directives and regulation into UK law and will form the basis for regulation of UK financial services firms
- EU law has supremacy over domestic law among EU member states. It takes the form of directives that need transposition into domestic law of EU member states. In the UK, EU directives have been incorporated into the Handbook or UK legislation.
- By contrast, EU regulations are directly applicable. This means they do not need to be transposed into the Handbook or UK legislation.
- When the UK leaves the EU, directly applicable EU regulations will (in the absence of a transitional arrangement) no longer apply, leaving a legislative gap. To compensate for that, the European Union Withdrawal Act (EUWA) incorporates EU regulations into UK law. They will be amended to make them work effectively by a series of statutory instruments (SIs). Similarly, the government is proposing in a series of SIs equivalent amendments to UK laws that: i/ relate to previously transposed directives ii/ reflect the UK’s current membership of the EU or, where applicable, the EEA, iii/ otherwise refer to the EU or EEA concepts.
The work done so far