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Eversheds Sutherland Financial Services Brexit round up week commencing 27 August 2018

Eversheds Sutherland Financial Services Brexit round up week commencing 27 August 2018

  • United Kingdom
  • Brexit
  • Financial services and markets regulation
  • Financial institutions

30-08-2018

While the politicians may be away, the apparatus of government and the industry bodies are certainly not at play, with key notices, guidance, reports and draft secondary legislation released in the last three weeks.

HMG Framework for the UK-EU partnership: Financial Services

HMG sets out its proposed model for the future UK-EU partnership in relation to financial services, produced by the UK negotiating team for discussion with the EU.

HMG are asking for a principle of autonomy such that “Each Party to determine its own rulebook and assess whether access to its market is maintained” and, in light of the UK and EU being equivalent at the outset, that “Initial reciprocal recognition [be] agreed for all third country regimes”.

HMG are seeking a two-fold relationship for financial services, which is autonomous in terms of access to market and bilateral in relation to economic and regulatory arrangements. Implicit in this is that the bilateral element will involve indirect submission to CJEU jurisdiction and the UK will, in practice, be a rule taker in relation to regulatory bodies (if any) in which it is permitted to participate. The dissonance that was present in Chequers and the White Paper is evident in this presentation too.

Slide 7

“Once the UK leaves the EU, we will maintain strong and appropriate regulation of our sector, given the exposure of our economy to the fiscal risk it represents.

“The UK hosts the world’s most significant financial centre, with markets and products that are often very different from what is found elsewhere in the EU.

“These differences mean that ruletaking – in the sense of an open ended commitment to adopt rules without having influenced their formation – will simply not work for this sector

“It is important to find a mutually acceptable solution that encourages us to work together constructively, protecting financial stability, and respecting the principle of autonomous decision-making”

HMG are trying to square the circle of meeting the Commission’s concern about preserving the EU’s autonomy, in particular in relation to the granting or withdrawal of equivalence recognitions in respect of UK financial services regulation, with creating a stable and predictable environment for cross-border trade in financial services. The problem is that preserving the EU’s right to withdraw equivalence at 30 days’ notice isn’t consistent with stability.

Slide 19

“Safeguard existing rights acquired under the agreement

“Protect consumers and businesses through a commitment that existing contracts can be fulfilled even if access is withdrawn, or an institutional process to address this issue together at the relevant time”

Although there is a doctrine of acquired rights in international law which relates to rights that have been acquired by natural and legal persons under treaties and how these cannot be withdrawn once they have vested, it seems more likely that HMG are asking the EU to reciprocate the current legislative moves by HMT and the various UK financial services regulators to legislate for contract continuity following Brexit, for instance providing for recognition of EEA based CCPs and derivatives trades written prior to Brexit being dealt with via those EEA based CCPs after Brexit. Given the Commission’s position on preserving the integrity of the EU’s Internal Market (the Single Market) and its insistence that the UK access to the Single Market must be lesser than that of EU member states after Brexit, it seems unlikely that this will be forthcoming.

To read the HMG framework, click here.

HMT guidance: Banking, insurance and other financial services if there’s no Brexit deal

This guidance contains no surprises and each element has been previously announced, however, the guidance does draw this altogether in a useful summary. HMT continues to push its line that it is being responsible with its temporary permissions and recognition regimes while the Commission is being remiss by not providing for continuity.

HMT make it clear that as far as they are able they will legislate for contractual continuity for the insurance and derivatives markets, but note that they cannot deliver this alone without cross-border co-operation from the EU. They also note that even though HMT will provide for a temporary permissions regime (“TPR”), the national rules governing EEA based financial services firms may be such that some EEA firms will be unable to avail themselves of the UK temporary permissions in any event.

To read the HMT guidance, click here.

DExEU guidance: UK government's preparations for a 'no deal' scenario

Again nothing new, but provides a summary of the legislative steps HMG is taking.

To read the DExEU guidance, click here.

ES register 132 English lawyers in Ireland, more than any other UK law firm

Registration of English lawyers in Ireland is part of our Brexit strategy to ensure that we will be able to continue to advise clients on EU law post Brexit.

To read the Legal Week story, click here.

FCA Dear CEO letter on cross-border booking arrangements

The FCA has published a Dear CEO letter setting out principles around booking arrangements:

“We are aware that some authorities elsewhere in Europe have set out specific requirements as regards business models. We are open to a broad range of legal entity structures or booking models. This includes those making use of back-to-back and remote booking, providing their associated conduct risks are effectively controlled and managed. Our starting point is therefore not to restrict business models but to understand the principles and practice involved and how the conduct risks that arise from them are managed. As such, booking models should comply with the following principles:

• Firms should set out a clear rationale for their booking arrangements, document them and have them approved by the Board

• Risk management should be appropriate for the firm’s booking activities including hedging arrangements

• There is a broad alignment of risk and returns at the entity level

• Firms should have adequate systems and controls in place to ensure that booking arrangements are followed

• Firms should consider whether responsibility for oversight of booking arrangements should be explicit in statements of responsibilities

• Booking arrangements should not be an impediment to the firm’s recovery and resolution”

To read the FCA Dear CEO letter, click here.

FMLC report on legal uncertainty arising in context of robustness of financial contracts after Brexit

In a report published on 6 August the FMLC has considered whether, in the context of a hard Brexit, the performance of existing (sometimes called "legacy") financial contracts would continue, or whether Brexit would make their performance illegal, impractical or impossible in some way. The report sets out the FMLC's in-depth analysis of this issue. It highlights the legal uncertainty that will arise if there is no clarity as to the future of the UK/EU relationship post-Brexit.

The analysis focuses on existing contracts, although the FMLC notes some of the points raised may be equally relevant to new contracts concluded after exit day. The analysis also exclusively concerns contractual rights and obligations, although the FMLC recognises that the performance of services and activities relating to financial contracts are integral to the assessment of business continuity.

To read the FMLC report, click here.

Short Selling (Amendment) (EU Exit) Regulations 2018

HMT has decided to retain the EU short selling ban that has been in place since the credit crunch, notwithstanding that there was some discussion at the time of the referendum as to whether this might be a point on which the UK would deviate from EU rules.

The draft regulations will amend the Short Selling Regulation (Regulation 236/2012) (“SSR”), Commission Delegated Regulation 918/2012 supplementing the SSR and Part 8A of the Financial Services and Markets Act 2000 (FSMA) (which implemented parts of the SRR in the UK), to ensure that the retained EU law will operate effectively and to rectify other deficiencies in that legislation arising from the UK's withdrawal from the EU.

Regulation 1 of the draft Regulations will come into force on the day after the day on which the draft Regulations are made. The other provisions will come into force at the point at which the UK leaves the Single Market. This will be 30 March 2019 if there is a no deal Brexit and 1 January 2021 if the transitional period in the Withdrawal Agreement comes into force.

HMT will lay the draft Regulations before Parliament this Autumn.

To read the draft regulations, click here.

To read the explanatory information, click here.

Draft Deposit Guarantee Scheme and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

The Deposit Guarantee Scheme (“DGS”) comprises of the Financial Services Compensation Scheme (“FSCS”) which guarantees deposits up to £85,000, implementing the Deposit Guarantee Schemes Directive 2014/49/EU (“DGSD”). After Brexit, in theory, HMG will have the freedom to amend the level of protection under the DGS. In practice the EU considers any DGS more generous than the EU permits under the DGSD to be unfair competition for deposits, notably forcing Norway to reduce its DGS level by more than half when the DGSD was extended to EEA member states including Norway. If the UK wants enhanced equivalence for retail banking, committing to not improving the UK’s DGS offer is likely to be part of the price.

The Regulations also provide for amendments to the Financial Ombudsman Scheme (“FOS”) provisions in FSMA 2000.

To read the explanatory information, click here.

To read the draft statutory instrument, click here.

Draft Capital Requirements (Amendment) (EU Exit) Regulations 2018

The purpose of the draft Regulations is to make amendments to a number of aspects of the Capital Requirements Directive IV to ensure that it continues to operate effectively in the UK once the UK has left the EU. The relavant UK legislation relating to CRD IV is:

• Regulated Covered Bonds Regulations 2008 (SI 2008/346)

• Capital Requirements Regulations 2013 (SI 2013/3115)

• Capital Requirements (Country-by-Country Reporting) Regulations 2013 (SI 2013/3118)

• Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 (SI 2014/894)

Changes introduced by the draft Regulations relate to matters including:

• Group consolidation

• EU27 exposures

• Macro-prudential measures

• Transfer of functions

• Equivalence decisions (which will be made by HMT)

• Information sharing and co-operation requirements between UK and EEA regulators

• Binding technical standards (BTS)

To read the draft regulations, click here.

To read the explanatory notes, click here.

How Eversheds Sutherland can help

Since June 2016, our lawyers and consultants have advised various institutions passporting into the UK from EU27 Member States and passporting from the UK into the EU27 on Brexit planning and Brexit related issues.

We would be happy to discuss how we can help you with your Brexit planning and execution of those plans.

For more information contact

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