The FCA has today set out how it would use the temporary transitional power in the event the UK leaves the EU without a withdrawal agreement.
The Treasury has put forward draft legislation that would make transitional provisions if the UK leaves the EU without a withdrawal agreement.
This is intended to minimise the disruption for firms and other regulated entities in this scenario.
The temporary transitional power would give the FCA the ability to delay or phase in changes to regulatory requirements made under the EU (Withdrawal) Act 2018 (the legislation that has enabled the ‘onshoring’ of EU legislation and rules into the UK rulebook) for a maximum of two years from exit.
The FCA intends to make use of this power to ensure that firms and other regulated persons can generally continue to comply with their regulatory obligations as they did before exit. This will enable firms to adjust to post-exit requirements in an orderly way.
There will be some areas where it would not be consistent with the FCA’s statutory objectives to grant transitional relief using the temporary transitional power. In these areas only, firms and other regulated persons as identified below should begin preparing to comply with the changed obligations now, if there is no implementation period.
FCA executive director of international Nausicaa Delfas says: “The temporary transitional power is an important part of our contingency planning. In the event that the UK leaves the EU without an agreement, it gives us the flexibility to allow firms and other regulated persons to phase in the regulatory changes that would need to be made as a result of ‘onshored’ EU legislation. This will give firms certainty, ensure continuity, and reduce the risk of disruption.
“There are some areas such as reporting rules under Mifid II, where it would not be appropriate to provide a phase-in, as receiving these reports is crucial to our ability to ensure market oversight and the integrity of financial markets. In these areas only, we expect firms and other regulated persons to begin preparing to comply with the changes now.”
The following firms or persons should begin to prepare to comply with changes now:
- Firms subject to the Mifid II transaction reporting regime, and connected persons (for example approved reporting mechanisms).
- Firms subject to reporting obligations under European Market Infrastructure Regulations.
- EEA issuers that have securities traded or admitted to trading on UK markets.
- Investment firms subject to the Bank Recovery and Resolution Directive and that have liabilities governed by the law of an EEA state.
- EEA firms intending to use the market-making exemption under the Short Selling Regulation.
- Firms intending to use credit ratings issued or endorsed by FCA-registered credit ratings agencies after exit day.
- UK originators, sponsors, or securitisation special purpose entities of securitisations they wish to be considered simple, transparent, and standardised under the Securitisation Regulation.
Last summer the FCA set out its approach to preparing for all Brexit scenarios, including if there is no withdrawal agreement and no implementation period.
It has been consulting on changes to the FCA Handbook and binding technical standards for the same reason.
The watchdog adds existing transitional arrangements such as, for example, the temporary permissions regime will operate from exit day.
It says firms and other regulated persons wishing to use these regimes should ensure they have completed the necessary steps by exit day to enter the relevant regime.
The FCA will publish more information on how firms should comply with post-exit rules before exit day.