FCA outlines no-deal Brexit contingency plans

The Financial Conduct Authority (FCA) has today set out how it will use temporary transitional power in the event of a no-deal Brexit. Intended to minimise disruption for firms and other regulated entities, the Treasury has put forward draft legislation that would make transitional provisions if the UK leaves the EU without a withdrawal agreement.

The temporary transitional power would give the FCA the ability to delay or phase in changes to regulatory requirements made under the EU (Withdrawal) Act 2018 (the legislation that has enabled the 'onshoring' of EU legislation and rules into the UK rulebook) for a maximum of two years from exit.

The UK’s financial watchdog will to use this power to ensure that firms and other regulated persons can generally continue to comply with their regulatory obligations as they did before exit, enabling firms to adjust to post-exit requirements in an orderly way.

Executive director, international at the FCA, Ms Nausicaa Delfas said the temporary transitional power is an important part of 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,” she explained. “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.”

The FCA said 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, firms and other regulated persons as identified below should begin preparing to comply with the changed obligations now, if there is no implementation period.

The June 2018, the watchdog set out its approach to preparing for all Brexit scenarios. It will issue further information on how firms should comply with post-exit rules before exit day.

Preparing for Brexit (Source: Financial Conduct Authority)

The following should 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.

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