Last week, the Financial Conduct Authority (FCA) published two consultation papers, setting out its proposed approach on the UK’s exit from the EU in the event of a ‘hard’ Brexit.
It wants to ensure there is a ‘functioning regulatory framework in place’ if we leave the EU without an implementation period.
What do the consultation papers cover?
The two consultation papers cover:
- Amendments to the FCA Handbook and Binding Technical Standards (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.
How is the FCA approaching the UK’s withdrawal from the EU?
In publishing its consultation papers, the FCA said that it is ‘working to ensure as smooth a transition as possible as the UK prepares to leave the European Union’.
Commenting on the consultation papers, Nausicaa Delfas, Executive Director of International at the FCA, said that the plans are designed 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’.
What happens to financial services regulation when the UK leaves the EU?
Parliament has passed the European Union (Withdrawal) Act 2018 to prepare the UK’s legal framework for exiting the EU. The Act will convert existing, directly applicable EU law at the point of exit into UK law, as well as preserving existing UK laws which implement EU obligations, and giving 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.
The first consultation paper proposes changes that may need to be made to the FCA Handbook and BTS, as well as setting out the FCA’s approach to EU non-legislative material after Brexit.
Proposed 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.
It says that ‘In a small number of cases we have found more than one solution to resolve an issue. Where this is the case we set out our chosen proposal and welcome feedback on our proposed approach’.
The second paper sets out the proposal for the Temporary Permissions Regime, which will ensure that European Economic Area (EEA) firms who can currently provide financial services in or into the UK, and the EEA investment funds that can be marketed in the UK, via ‘the passporting system’, can continue to carry on regulated business in or into the UK for a limited period after Brexit while they seek full authorisation in the UK.
The consultation paper details 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.
What is the FCA seeking feedback on?
The regulator wants feedback, in particular, on ‘whether compliance with changes to regulatory requirements by exit day would be a particular challenge for firms.’
It also says that it does not expect firms to make any changes to the way they operate now to meet the proposed requirements.
How can firms respond to the consultation?
The consultations on both papers are open until 7 December 2018.
The FCA says that it also wants to know ‘about any significant implementation challenges’ firms would face in meeting the proposed amendments, so that it can work with firms to address those challenges.
The regulator plans to give feedback in early 2019 and publish final versions of the materials before exit day.
The UK’s exit from the EU will doubtless create challenges for Compliance Officers. Compliance professionals need to understand any changes in order not to fall foul of the regulations after March 2019.
Change is, of course, a constant for Compliance as well as many other roles.