The U.K.’s financial services regulator has unveiled its plans to deal with the aftermath of a “no-deal” Brexit scenario that would effectively see EU rules withdrawn overnight.
On 10 October the Financial Conduct Authority (FCA) published two consultation papers that set out its proposals about how firms will continue to be regulated and how firms in the European Economic Area (EEA) will be able to continue conducting business in the United Kingdom in the event the country leaves the European Union on 29 March 2019 without a transition period.
The consultation papers also set out the FCA’s approach to the regulation of credit rating agencies, trade repositories, and data reporting services providers, as European agencies such as the European Securities and Markets Authority (ESMA) will no longer have jurisdiction over such firms once Brexit is finalised.
The two hefty consultation papers (running at 150 and 781 pages, respectively) focus on how EU financial rules and technical standards may change once the United Kingdom exits the European Union, and how the Temporary Permissions Regime—which will allow EEA firms and funds passporting into the United Kingdom to continue operating after Brexit while seeking full U.K. authorisation—will work in practice.
Currently, as part of the single market and through “passporting” rights, financial firms in the United Kingdom and the rest of the European Union are able to sell their goods and services seamlessly across the bloc if they are regulated in one EU member state. The FCA has confirmed that if there is no transition period following a “no-deal” scenario, EU-based companies coming into the United Kingdom will still be able to rely on temporary authorisation under the Temporary Permissions Regime for as long as three years, essentially maintaining the status quo.
“Today we are publishing two consultation papers to ensure that in the event the U.K. 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 U.K.”
Nausicaa Delfas, Executive Director of International, FCA
The FCA says it is working to ensure as smooth a transition as possible and in general it is making no big policy changes beyond what was needed to ensure a chaos-free continuity.
The FCA has been responsible for the “lift and shift” of European rules into U.K. legislation so that, on the first day that the United Kingdom is out of the European Union, the two regulatory systems will be identical. It said no broader policy changes were being proposed in its consultation papers.
The regulator has added, however, that it is taking a “proportionate” approach and is ready to use powers recently granted to it by the Treasury “to waive or modify some requirements to allow for a smooth transition to the post-exit regulatory regime.”
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 U.K. 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 U.K. This is consistent with our aim to provide certainty and confidence for firms operating in the U.K.”
The FCA’s consultation papers were released on the same day as a U.K. government minister agreed with a Bank of England estimate that up to 5,000 financial services jobs are likely to move out of London in the event of a “no-deal” Brexit and a week after RBS Bank Chief Executive Ross McEwan warned that a no-deal scenario could tip the U.K. economy into recession.
Both consultations are open until 7 December 2018.