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Preparing for Brexit: Action for FCA Regulated Firms

4 February 2019

Preparing for Brexit: Action for FCA Regulated Firms

Friday saw the regulator set out how they would use the temporary transitional power granted to them by the Treasury in the event the UK leaves the EU without an agreement.

The draft legislation put forward by HM Treasury sees the UK regulators have the temporary power to make transitional provisions intended to minimise the disruption for firms and other regulated entities in the case of a no deal Brexit.

Under these transitional powers, the FCA would have the ability to delay or phase in changes to regulatory requirements for a maximum of 2 years from Brexit.

“In the event that the UK leaves the EU without an agreement, [our temporary transitional power] 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.”

Executive Director of International, FCA, February 2019

The FCA has made it known that they would intend on utilising these powers to ensure that firms and other regulated persons can “generally continue to comply with their regulatory obligations as they did before exit.” In this way, firms would be able to adjust to any post-exit requirements in an orderly way.

However, there are some areas that it would not be in line with regulator’s statutory objectives to grant this transitional relief and therefore, the FCA has now informed that the following regulated firms/persons should begin to prepare to comply with the changed obligations now.

Brexit Planning - Action for Firms:

As pinpointed in the FCA’s announcement on Friday (1st February 2019), the following regulated firms or persons should therefore begin to prepare to comply with changes now:

• 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 Regulations (EMIR).
• EEA Issuers that have securities traded or admitted to trading on UK markets.
• Investment firms subject to the [Bank] Recovery and Resolution Directive (RRD) 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.

Anticipated Regulatory Changes:

Whilst the FCA have announced they will of course be publishing more information on how firms should comply with post-Brexit rules before exit day, they have already prepared their approach for all given Brexit scenarios.

Last summer, (June 2018), the FCA set out its approach to Brexit, which included the scenario of no withdrawal agreement and also no implementation period.

It can be said that the FCA has not proposed policy changes, other than where deemed appropriate to reflect the UK’s new positions outside of the European Union however, they have been consulting upon changes to their Handbook and the binding technical standards.

Furthermore, the FCA has put in place transitional arrangements that will operate from Brexit day. Such an example is the Temporary Permission Regime (TPR) that will operate from exit day. Those firms and other regulated persons that wish to utilise these regimes, should ensure they have carried out the required steps by Brexit day to make sure they have entered the relevant regime.

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