FCA elaborates on use of temporary transitional power in case of no-deal Brexit

The UK Financial Conduct Authority (FCA) has earlier today outlined how it would use the temporary transitional power in case the UK leaves the European Union without an agreement.

The Treasury has put forward draft legislation that would temporarily empower UK regulators to make transitional provisions in the event of no-deal Brexit. This measure aims to minimise the disruption for firms and other regulated entities in such a scenario.

The temporary transitional power would allow the FCA to delay or phase in changes to regulatory requirements made under the EU (Withdrawal) Act 2018 for up to two years from exit.

The FCA plans to make use of this power to ensure that firms and other regulated persons can generally continue to comply with their regulatory obligations as they did before exit. This will enable firms to adjust to post-exit requirements in an orderly way.

However, there will be some areas where it would not be consistent with the FCA’s statutory objectives to grant transitional relief using the temporary transitional power. In these areas only, certain firms and other regulated persons have to start preparing to comply with the changed obligations now, if there is no implementation period.

Nausicaa Delfas, Executive Director of International at the Financial Conduct Authority said:

“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.”

The FCA advises the following firms or persons to 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 (BRRD) 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.

In addition, existing transitional arrangements such as, for example, the temporary permissions regime (TPR) will operate from exit day. The notification window for the temporary permissions regime is now open. Firms will have to notify the regulator that they wish to enter the temporary permissions regime using the FCA Connect system. Fund managers will also need to notify the FCA of which of their passported funds they wish to continue to market in the UK temporarily via Connect.

The notification window closes on March 28, 2019.

The temporary permissions regime is set to allow EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for a limited period, while they seek full FCA authorisation, if the UK leaves the EU on exit day without an implementation period in place. It will also allow EEA-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK.

The FCA says it will provide more information on how firms should comply with post-exit rules before exit-day.