The UK’s Treasury has published draft legislation that will give the Financial Conduct Authority (FCA) transitional powers if there is a ‘no-deal’ Brexit.
The powers would last for up to two years and enable the FCA to ensure that regulated firms keep up with their obligations.
The Bank of England and the Prudential Regulation Authority would also be given the same powers under the draft legislation.
The FCA is now urging firms to begin preparations in order to comply with changed obligations.
According to the FCA’s statement, those affected are:
- 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 Regulation.
- 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 (SSPEs) of securitisations they wish to be considered simple, transparent, and standardised (STS) under the Securitisation Regulation.
The powers’ scope
Additionally, already existing transitional arrangements – such as the temporary permissions regime, allowing firms and funds to passport into the UK in the event of a ‘no deal’ Brexit – will operate from 30 March 2019.
The aim of these powers is to “ensure that firms and other regulated persons can generally continue to comply with their regulatory obligations as they did before exit”, the FCA said in a statement.
“[The two-year window] will enable firms to adjust to post-exit requirements in an orderly way.”
Nausicaa Delfas, executive director of international at the FCA added: “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.”
In a news-filled day for the FCA, the regulator also announced that it has agreed memoranda of understanding (MoU) with the European Securities and Markets Authority (Esma) and other EU regulators allowing the exchange of information between the bloc and the UK in case no agreement on the withdrawal is reached.
The FCA stated the memoranda include:
- a multilateral MoU with EU and EEA National Competent Authorities (NCAs) covering supervisory cooperation, enforcement and information exchange; and
- an MoU with the Esma covering supervision of Credit Rating Agencies and Trade Repositories.
“I am pleased we have been able to agree these MoUs,” said FCA chief executive, Andrew Bailey.
“They will allow for continued close cooperation in the event the UK leaves the EU without an agreement. They should also minimise the potential for disruption, which we know is particularly important for the investment management sector, Credit Rating Agencies and Trade Repositories.”
European Fund and Asset Management Association’s (Efama) director general Tanguy van de Werve, also said: “This is a very important step that Efama has been calling for many months, as it will help avoid disruptions in the provision of asset management activities. Ensuring that delegation continues to be authorised as it is today is of paramount importance to the asset management industry.
“It brings comfort to the industry in their Brexit contingency planning but, most importantly, it ensures that EU investors will continue to access world leading expertise in the management of their savings.”