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WHAT IS HAPPENING?

As firms will know, the Brexit transition period is due to end on 31st December, with potentially significant implications for many firms. Some of these were covered in a recent speech delivered by Nausicaa Delfas, Executive Director of International, at the UK’s Regulatory Regime for Financial Services Summit, with the key points for firms being summarised below.

WHAT DO YOU NEED TO DO?

The FCA recently set out its approach to the share trading obligation, in the absence of mutual equivalence. this will allow firms to continue to access UK and EU trading venues.

The FCA will use the Temporary Transitional Power (TTP) to allow firms to continue trading all shares on EU trading venues and systematic internalisers (SIs) where they choose to do so, and where the regulatory status of those venues and SIs permits such activity. Trading venues in the EU can be used for the purposes of executing trades in shares by UK participants, providing the venue has ensured it has the relevant permissions under either the UK’s longstanding regimes for overseas access or the temporary permissions regime (TPR).

The chancellor announced that hm treasury will unilaterally grant the EU a wide range of equivalence determinations.

The decisions cover various activities and will provide certainty to firms and their clients and counterparties. In some instances, the decisions will enable UK firms to continue using EEA products and services, and in others, they will avoid increased cost and complexity for firms. Firms should consult the full list of decisions and further information on the FCA’s website.

The FCA is finalising work to onshore EU legislation, which will ensure at the end of the transition period that firms have substantially the same regulatory requirements as before the UK left.

The FCA has made significant updates to its Handbook website to give firms a clear view of what rules will look like after the transition period. It was announced in early October that the FCA would use the TTP widely to allow firms more time to adjust to most new requirements.

As passporting will end on 31 December 2020, the FCA and HM Treasury have put in place a series of temporary regimes, such as the TPR – these will allow approximately 1500 non-UK firms and fund managers to operate in the UK immediately after the transition period. Alongside the Financial Services Contract Regime (which will enable EEA passporting firms that do not enter the TPR to wind down their UK business in an orderly fashion)  these are intended to help resolve many cliff-edge risks and to provide certainty to firms and markets.

To ensure continued cooperation with counterparts after the end of the transition period, the FCA has negotiated almost 80 Memoranda of Understanding with European supervisory authorities and regulators from around the world. These will come into effect at the end of the transition period and allow the FCA to continue to effectively supervise cross-border activity.

In the absence of mutual equivalence, some firms will be caught by a conflict between the EU and UK derivative trading obligations, potentially hampering their ability to trade derivatives where they see fit.

UK firms may not be able to continue servicing EEA-resident customers after the transition period ends, in view of the ending of passporting and as there is no EU-wide version of the UK’s TPR.

Many of the temporary measures previously put in place by EEA countries to prepare for a ‘no deal’ exit have lapsed. So, UK based firms wanting to continue servicing customers in the EEA from 1 January 2021 will need to ensure they meet local laws and regulators’ expectations by that date. Firms must speak to local regulators as appropriate, obtain permissions, and repaper contracts where necessary while treating customers fairly throughout this process.

The FCA has a dedicated web page here, which links to the Brexit sites of EEA national regulators.

There is no data adequacy decision from the EU Commission as yet, so firms need to be prepared, to ensure personal data can lawfully be transferred from the EU to the UK – for example, through the appropriate use of standard contractual clauses.

The ICO points out in this connection that If you are a UK business or organisation that receives personal data from contacts in the EEA, you need to take extra steps to ensure that the data can continue to flow at the end of the transition period and If you are a UK business or organisation with an office, branch or other established presence in the EEA, or if you have customers in the EEA, you will need to comply with both UK and EU data protection regulations at the end of the transition period. You may need to designate a representative in the EEA.

After 1 January 2021, when EU law and EU regulatory structures cease to apply in the UK, there will need to be a “resetting” of how financial services regulation will be made in the UK. To this end, HM Treasury is reviewing the UK’s future regulatory framework, and last month published the first consultation, proposing a split of roles and responsibilities between the Parliament, the Government and the regulators, which will see the transfer of more rule-making powers to the regulators. These proposals are intended to create a more agile and responsive regulatory system.

How can we help you?

If you’d like to know more about how we can help you with your Brexit preparations, or with any other aspect of FCA compliance, our expert team is here to help.

Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.