The Financial Conduct Authority (FCA) has issued an instruction to certain types of firms to begin making preparations now for the possibility of a no deal Brexit.

These firms are:

  • Firms subject to the MiFID II transaction reporting regime
  • Firms subject to reporting obligations under the European Market Infrastructure Regulation(EMIR)
  • Issuers of securities that are based in the European Economic Area (EEA), and 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

For most firms, who do not fall into any of these categories, they should still consider whether they need to make any Brexit-related preparations. It may be necessary to do this if any of the following apply to the firm:

  • 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

The last of these in particular may apply to a large number of firms.

Meanwhile, the FCA has been given a ‘temporary transitional power’ by the Government. In the event that the UK leaves the EU without a deal, the regulator will be able to delay or phase in changes to regulatory requirements made under the EU (Withdrawal) Act 2018 for a maximum of two years from the exit date. This should mean that firms can generally continue to comply with their regulatory obligations as they did before exit.

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

“The temporary transitional power is an important part of our contingency planning. In the event that the UK leaves the EU without an agreement, it 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.

“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.”

Politically, the nature of the UK’s exit remains extremely uncertain, even with less than two months to go to the scheduled exit date. A vote in the House of Commons indicated that a majority of MPs would support the Prime Minister’s proposed exit deal if unspecified changes were made to the Irish backstop. The PM has now returned to Brussels to seek further concessions from EU leaders.

The Commons also voted against the principle of exiting with no deal, but a separate motion that would have put in place legal safeguards to prevent ‘no deal’ was defeated.

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