FCA highlights to firms there is only one month to the end of the Brexit transition period and explains the actions to be taken by firms

We are now into the final month of the Brexit transition period. December 2020 will be the last time that UK firms will be able to trade with their EU counterparts on the same terms that existed when the UK was a member of the Union.

At the time of writing, it was still unclear whether the two sides would strike a trade deal, or whether the UK would exit the transition period on ‘no deal’ / World Trade Organisation terms.

However, regardless of the outcome of these final negotiations, the UK financial services industry must be prepared for significant changes, as any trade deal will not provide arrangements similar to the passporting and equivalence regimes that have been in force in the financial sector for many years now.

The Financial Conduct Authority’s statement, issued on December 1, says:

“When the transition period ends at 11pm on December 31, firms will need to be prepared for a number of changes to the regulatory environment in which they operate. EU laws will no longer apply and passporting will end.

“If a firm currently relies on a passport to provide services to or from the UK, and proposes to cease those services at the end of the transition period, the FCA expects them to ensure the right outcomes for their customers, and provide timely communications to enable them to make appropriate decisions.”

Nausicaa Delfas, Executive Director of International at the FCA, said:

“With just a month to go until the end of the transition period, firms need to make sure they are prepared for the end of passporting, and for the new financial services landscape after the end of the transition period.

“To help minimise disruption, we have onshored EU legislation and established temporary regimes to allow non-UK firms and funds to operate in the UK after 31 December 2020.

“We remain committed to open markets, international co-operation and high international standards of regulation.”

The FCA has announced it will make use of the Temporary Transitional Power (TTP), which will hopefully make life easier for many firms over the next 15 months. The TTP will apply from the end of the transition period until March 31 2022. This means firms do not generally need to make preparations for imminent changes to regulatory obligations. However, the TTP will not apply in a number of areas, and here firms should expect their regulatory obligations to change from the start of next year. These include:

  • Transaction reporting
  • Rules relating to handling of client assets
  • Use of credit ratings for regulatory purposes
  • Payment services
  • Mortgage lending secured on property in the European Economic Area

The FCA’s Temporary Permissions Regime (TPR) allows an EU firm to continue operating in the UK within the scope of its current permissions for a limited period after the end of the transition period. While the firm operates under the TPR, it can then arrange its application for full authorisation from the FCA to operate in the UK in the longer term. The TPR covers both a firm’s pre-existing business and any new business activities it may enter into during the TPR period.

UK firms wishing to operate in the EU from 2021 onwards need to investigate whether other national regulators have their own arrangements of a similar nature to the TPR.