The Financial Conduct Authority (FCA) has called for all authorised firms to consider whether they need to make preparations for the UK’s forthcoming exit from the European Union.
The firms that are most likely to be affected by Brexit are those that currently have business operations in the European Economic Area (EEA). The EEA, also known as the ‘single market’, comprises the EU member states plus Norway, Iceland and Liechtenstein, and current UK Government policy (and that of the Labour opposition) is not to seek EEA membership once the country has left the EU.
However, the FCA’s new ‘preparing your firm for Brexit’ webpage lists a range of scenarios that could all mean Brexit would have an impact on a firm’s business activities. These include:
- The firm provides regulated products or services to customers resident in the EEA
- The firm has customers based in the EEA, including those who were previously UK resident but may now have moved abroad
- The firm markets regulated products or services within the EEA. This would include any firm whose website might in any way be targeted at EEA residents
- The firm has service providers who are based in the EEA
- The firm transfers personal data between the UK and the EEA or vice versa
- The firm is part of a wider corporate group that is based in the EEA
- The firm receives funding from an entity based in the EEA
- The firm outsource or delegates tasks to an EEA firm, or vice versa
- The firm is party to legal contracts which make reference to EU law
Perhaps the best known feature of the existing EU financial regulatory system is the ‘passporting’ scheme. This scheme allows any firm authorised in a European Economic Area (EEA) member state to trade across the EEA without the need to obtain separate authorisation from the national regulator in each state. Instead they can trade in the other member states simply by virtue of holding a ‘passport’ from their own national regulator. The FCA however says that:
“After Brexit, and any implementation period, passporting in its current form will end for the financial firms currently using it in the UK.”
This appears to mean that in the long term, firms will require authorisation from the national regulator of every country in which they do business.
A Temporary Permissions Regime will be put in place, whereby European firms that currently operate in the UK using the ‘passporting’ system can continue to do so for a limited time after Brexit, before needing to apply for full FCA authorisation. There is currently no reciprocal agreement for UK firms who operate in the EEA. It is to be hoped the situation can be resolved, but at present it is the case that any UK firm that operates in European countries via the passporting system will lose their authorisation to do so on Brexit day (March 29).
The FCA Brexit webpage also acknowledges that ‘no deal’ remains a possibility, and that the UK may yet exit the EU without a trade agreement and without agreement for any sort of transition period.
In summary the FCA says firms should:
- Work out what changes they might have to make to their business
- Consider whether they need additional regulatory permissions
- Consider whether they should provide information to customers who may be affected by Brexit-related changes, such as where changes in contractual terms might affect them, remembering that this information needs to be provided “in a way which is clear, fair and not misleading”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article