101 UK Brexit Notes

Connemara Programme October 16 2018 pg. 45 Business: Finance: Banking, insurance and other financial services Purpose The purpose of this notice is to provide stakeholders (including personal and business customers of financial services firms and funds, and financial services firms, funds and financial market infrastructure) with information about the impact of the UK leaving the EU without a deal, and the government’s approach to ensuring that we have a functioning financial services regulatory framework in any scenario. Before 29 March 2019 The majority of the UK’s financial services legislation currently derives from EU law. Financial services are a highly regulated sector, and the EU internal market for financial services is highly integrated, underpinned by common rules and standards, and extensive supervisory cooperation between regulatory authorities at an EU and member state level. Firms, financial market infrastructures, and funds authorised in any European Economic Area (EEA) country can carry out many activities in any other EEA country through a process known as “passporting”, as a direct result of their EU authorisation, or via similar arrangements. This means that if these entities are authorised in one member state, they can provide services to customers in other member states, without requiring authorisation or supervision from the local regulator. Some types of financial services entities operating in the UK are currently supervised by EU agencies. For example, credit rating agencies (CRAs) and trade repositories (TRs) established in the UK are currently authorised and regulated by the European Securities and Markets Authority (ESMA). After 29 March 2019 if there’s ‘no deal’ The European Union (Withdrawal) Act 2018 transfers EU law, including that relating to Financial Services, to the UK statute book on exit day. It also gives Ministers powers to amend the law to ensure that there is a fully functioning financial services regulatory framework at the point of exit. When the UK leaves the EU, it will be outside of the EU’s framework for financial services regulation. In a ‘no deal’ scenario, UK firms’ position in relation to the EU would be determined by the relevant member state rules and any applicable EU rules that apply to third countries (countries outside of the EEA) at that time. The UK will also, in general, default to treating EEA states and EEA firms largely as it does other third countries and their firms. However, the government has confirmed that there will be instances where we diverge from this approach in order to ensure that a functioning legislative regime is in place, to minimise disruption and avoid material unintended consequences for the continuity of financial services provision, to protect the existing rights of UK consumers, or to ensure financial stability. One key example of this is the government’s commitment to introduce a Temporary Permissions Regime (TPR) that will allow EEA firms currently passporting into the UK to continue operating in the UK for up to three years after exit, while they apply for full authorisation from UK regulators. The government has published in draft the legislation that will deliver the TPR and the financial regulators, the Financial Conduct Authority (FCA) ha s published its approach to implementing the TPR and the Prudential Regulation Authority (PRA) has als o set out its expectations for the TPR . Similar temporary regimes will be provided for EEA electronic money and payment institutions, registered account information service providers, and EEA funds that are marketed into the UK. The government has also committed to legislation alongside this, if necessary, to ensure that contractual obligations (such as under insurance contracts) between EEA firms and UK-based customers that are not covered by the temporary permissions regime can continue to be met. The government has already laid draft secondary legislation that will establish a temporary recognition regime (TRR) for central counterparties (CCPs). This regime will allow non-UK CCPs to continue to provide clearing services to UK firms for a period of up to three years while those CCPs apply for recognition in the UK. The Bank of England ha s published further details on the approach to recognising non-UK CCPs . The government will also be bringing forward legislation to deliver transitional arrangements for:  Central Securities Depositories  Credit Rating Agencies  Trade Repositories  Data Reporting Service Providers  Systems currently under the Settlement Finality Directive  Depositaries for authorised funds.