1. Context on Brexit for financial services institutions
In the event that the UK leaves the EU without a deal, the UK will no longer be part of the EU’s single market for financial services or the EU’s joint supervisory framework for financial services firms and markets. This will have important consequences for UK and EEA firms engaged in cross-border activity between the UK and EEA countries.
Firms based in the UK will lose access to the EU ‘Passport’. The EU ‘Passport’ gives firms authorised in their home state the right to conduct business in the EEA based on their home state authorisations. The ability for firms to trade cross-border may therefore change as a result and the UK authorities on their own will be unable to address all the consequences of the loss of the EU ‘Passport’. You can find out whether your firm uses the ‘Passport’ by checking the Financial Conduct Authority’s financial services register.
2. Action taken by the UK
The government and the financial services regulators have taken steps to minimise disruption to firms operating in the UK, if the UK leaves without a deal. We have put in place legislation, via the EU (Withdrawal) Act, to ensure that, in the event that the UK leaves the EU without a deal, there is a functioning legal and regulatory regime for financial services. As far as possible, the same rules that apply pre-Exit will apply immediately post-Exit.
However, it has been necessary to make some changes to reflect the UK’s new status as a non-EU country, for example by transferring functions currently carried out by EUbodies to the appropriate UK body, or amending otherwise deficient reference to EUinstitutions in UK legislation.
As part of this work, the government has legislated to create a range of temporary permissions and transitional arrangements for European firms and funds. One such arrangement is the Temporary Permissions Regime, which will allow EEA firms operating in the UK via a passport to continue to conduct business in the UK for a limited period after Brexit while they go through the process to obtain full authorisation. A Financial Services Contracts Regime has also been put in place to allow EEA firms that do not join the Temporary Permissions Regime in the UK, or are unsuccessful in applying for UK authorisation, to provide a mechanism by which existing contractual obligations can be wound down in an orderly manner.
The government has also delegated a general temporary transitional power to the UK regulators which will enable them to phase in changed regulatory requirements for firms post-exit, where requirements are changing as a result of the UK leaving the EU. The Bank, PRA and FCA have already committed to broad use of this power. Firms and regulated entities will be made aware of the areas in which they will have to comply with changed obligations in time for Exit day in a no deal scenario, and where use of the transitional power will allow firms more time to reach compliance. Further information is available on the regulators’ websites.
Further information about HM Treasury’s legislative approach to preparing for a no-deal exit is available here.
3. Preparing your firm for Brexit
The Financial Conduct Authority (FCA) are regularly updating their information for financial services firms preparing for Brexit. You should familiarise yourself with this information.
Regardless of where your business or your customers are based, you should consider whether you transfer personal data from the EU to the UK. UK and EU organisations should take steps to mitigate impact by implementing alternative transfer mechanisms to send personal data from the EU to the UK. Details of what the alternative transfer mechanisms available are and how to make use of them are set out in the ICO guidanceand gov.uk guidance. It is important for organisations, as a priority, to review whether they would be affected and consider what action may be required. It is important to note that changes may take some time to implement.
The majority of financial services institutions are required to communicate any changes arising as a result of Brexit to their customers in a clear and timely manner. To find out how you will need to adjust, you should take legal advice and discuss your position with the regulator in the country where you wish to continue operating.
4. Assessing the impact on your firm
Whilst you are less likely to be materially affected by Brexit, it may still impact your business. If you are unsure whether Brexit will affect your business, the FCA have put together a list of questions that may help you consider the areas in which you could be affected.
5. Continuing to provide services to customers in the EEA
The UK authorities are not able, through the arrangements described above, to address risks to customers based in the EEA of UK firms currently providing services into these countries using the EU ‘Passport’.
If you are a financial services institution based in the UK and you want to continue to provide services to customers in the EEA, you should have identified any steps you may need to take if you wish to continue to serve EEA customers after the UK withdraws from the EU.
To find out how you will need to adjust, you should take legal advice and discuss your position with the regulator in the country where you wish to continue operating. Some EU countries have also announced that they are also taking steps to ensure that UK financial services firms will be able to serve their existing customers after the UK leaves the EU; you should consider how this could impact your plans.
6. Continuing to provide services to UK customers
If you are a financial services firm based in the EEA and you want to continue to provide services to customers in the UK, you will also need to take action in order to continue to provide services to consumers.
To find out how you will need to adjust, you should take legal advice and discuss your position with the UK regulators.
This post was originally posted on by Her Majesty’s Treasury here.