BoE provides more Brexit-related information to UK financial services firms
Several papers and a “Dear CEO” Letter aim to provide more information to financial services firms in relation to the UK’s withdrawal from the EU.
Shortly after the UK Financial Conduct Authority (FCA) published a consultation paper on the temporary permissions regime (TPR) for inbound firms and funds, the Bank of England and the Prudential Regulation Authority (PRA) have also provided more information to the firms they regulate about the UK’s withdrawal from the European Union.
The detailed information is contained in several consultation papers, as well as letters to businesses.
In a “Dear CEO” Letter, PRA’s CEO Sam Woods explains that the package of communications the BoE and PRA are publishing today sets out changes to their rules and binding technical standards arising out of EU withdrawal.
The aim is to keep the process as simple as possible, and the proposed changes therefore do not reflect any change in the policies, but only update them to reflect the UK’s withdrawal from the EU.
“Our position remains that, in all but a few areas, UK regulated firms do not need to take action now to implement changes in UK law arising from the UK’s withdrawal by March 2019”, the Letter says.
If the Implementation Period, which has been agreed in principle as part of the UK’s Withdrawal Agreement with the EU, takes effect on 29 March 2019, these changes would not take effect until after the end of the Implementation Period. In a scenario in which an Implementation Period is not in place, the UK regulators expect to exercise the powers that Government has proposed to provide to them to grant transitional relief to ensure that firms have sufficient time to comply with the changes.
The Letter states that EEA firms undertaking cross-border activities into the UK from the rest of the European Union via passporting and that wish to continue carrying out business in the UK post-withdrawal will require authorisation from the PRA. Firms should continue to plan on the basis that PRA authorisation will only be needed by the end of the Implementation Period.
However, in the event that there is no Implementation Period, the temporary permissions regime (TPR) will allow firms to operate for a limited period after withdrawal while they seek authorisation from the PRA. The TPR Statutory Instrument (SI) is currently being scrutinised by Parliament and yesterday passed an important milestone with a Commons debate on the measure.
A Consultation Paper (CP26/18), which expects comments by January 2, 2019, provides more details on the proposals relating to firms in the temporary permissions regime (TPR).
The aim of the TPR is to allow firms that currently access the UK market via the EU passporting regime to continue to operate in the UK for a limited period after withdrawal while they seek authorisation from UK regulators. A firm which is authorised to carry on regulated activities in the UK through Freedom of Establishment (FOE) or Freedom of Services (FOS) passporting can obtain a deemed Part 4A permission to carry on those activities for a maximum of three years (subject to HM Treasury’s power to extend the duration of the regime by increments of 12 months). As a consequence, EEA firms operating in the UK under the FOE or FOS passport that enter TPR will become, and be treated as, third country firms.
For firms in TPR with a branch in the UK, the PRA expects these firms to comply with the same rules that apply to other third country branches. For cross-border service providers in TPR with no UK branch, a more limited set of rules will apply. These will include rules that could apply, as currently written, to a PRA-authorised third country firm without a UK branch. These include rules in the Fundamental Rules, Auditors, Change in Control, Close Links, Fees, General Provisions, Information Gathering, Interpretation, Notifications and Use of Skilled Persons Parts, SM&CR requirements, and FSCS rules with adjustments as set out in Chapter 8 of this CP.
Firms entering the TPR may find it challenging to comply immediately after exit day with some requirements in PRA rules that will apply to them for the first time. Therefore, at this stage, the PRA is considering the use of possible transitional relief in relation to certain aspects of the following third country branch requirements:
The regulators also provide a non-exhaustive list of onshoring changes that are proposed to be made by Government under the Act, which are relevant to firms’ and FMIs’ interpretation of non-binding EU materials. However, any transitional relief granted by the Bank or PRA may affect the time that some of these changes take effect.
- EEA firms, FMIs and funds that were able to provide services into the UK through the use of passporting will need to seek authorisation or recognition to continue to be able to do so after exit. Therefore, any reference to passporting or processes associated with passporting is redundant. However, HM Treasury has also brought forward legislation that will allow EEA firms, FMIs, and funds to continue their activities in the UK for a limited period after withdrawal. References to third country firms and FMIs should be interpreted to include firms and FMIs that have temporary permission or recognition, as appropriate.
- Roles and responsibilities carried out by EU authorities are being reallocated to the most appropriate UK authority, to the extent that they remain relevant when the UK has left the EU. For example, HM Treasury has transferred the responsibility for central counterparty (CCP) recognition to the Bank of England, and is proposing to transfer the European Insurance and Occupational Pensions Authority (EIOPA) function of declaring an ‘exceptional adverse situation’ to the PRA. Some EU roles that exist to support the EU single market will be deleted. Firms and FMIs should interpret references to EU functions with reference to the new UK authority taking on that function. References to functions that are being deleted in Government onshoring legislation can be ignored.
- Detailed obligations for UK regulators to share information and co-operate with EU regulators will no longer be maintained. UK regulators will, however, be able to rely on general statutory provisions that support supervisory co-operation with third country authorities. Firms and FMIs should therefore interpret detailed obligations on the Bank and PRA to share information and co-operate with EU regulators as redundant but note that the Bank and PRA will continue to co-operate with international authorities and regulators, including EU authorities, in pursuit of their statutory objectives.
- The treatment of EEA firms and assets for the purposes of capital and liquidity requirements will, in most cases, be aligned with the treatment of third country firms and assets. Therefore, firms should interpret any Guidelines or Recommendations providing for preferential treatment of EEA assets in light of that approach.
- In cases where capital or liquidity consolidation was only required at the EEA level previously, this will be required at the UK level after exit day. For insurance groups, firm-specific consolidation waivers remain available. Therefore, firms should interpret any reference to the EEA consolidated group as if it was to the UK consolidated group.