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Ten things for asset managers to note about the end of the transitional period

  • United Kingdom
  • Brexit
  • Financial services and markets regulation
  • Financial services - Asset managers and funds



Last year we published a client briefing “Ten things for asset managers to note if there is a no-deal Brexit”.  With the end of the transitional period fast approaching, we have produced this updated version with ten things to note about the end of the transitional period and what happens thereafter.

The Transitional or Implementation Period

The UK entered a Transitional or Implementation Period (“TIP”) following formal legal Brexit on 31 January 2020, in accordance with the terms of the Withdrawal Agreement (“WA”) by which the UK left the EU.  During the TIP the UK remains subject to the burden and benefit of all EU law as if it remained a member state of the EU save that the UK has no say in any of the legal bodies of the EU, including the European Supervisory Agencies (“ESAs”) and the Court of Justice of the EU (“CJEU”). 

The TIP comes to an end on 31 December 2020, which the UK Government calls Implementation Period Completion Day (“IPCD”), when the UK will leave the legal ambit of the EU. 

If no free trade agreement has been agreed by IPCD, the UK and EU will revert to trading on WTO terms supplemented by a handful of discrete side agreements, which is generally known as “no-deal Brexit” and which the UK Government sometimes refers to as trading on Australian terms. 

The time available for agreeing and ratifying a trade deal by IPCD is tight and any deal which is reached by IPCD is unlikely to make provision for financial services beyond the minimal approach in the EU’s draft of the UK-EU FTA.

IPCD and UK onshoring of EU legislation

On IPCD the existing body of EU law which is directly effective in the UK, which includes Regulations, Delegated Acts and Implementing Acts and the jurisprudence of the Court of Justice of the EU, is onshored into UK law under the European Union (Withdrawal) Act 2018 (as amended) (“EUWA”), giving the UK essentially the same financial services regulation as the EU. 

The UK has amended that onshored regulation to make it work in a UK context, for instance by changing references to ESMA to references to the FCA, PRA or HMT.  These amendments are not intended to change policy save to the extent that they implement the policy of the UK leaving the EU and becoming an independent sovereign state.

Will there be a deal on Financial Services?

We think that it is unlikely there will be any meaningful deal on financial services on IPCD and that the chances of a deal on financial services subsequent to IPCD are remote too.  The EU believes that the appropriate way to deal with cross-border trade in financial services is by its various unilateral equivalence regimes for financial services.  As a result of onshoring EU regulation, the UK now has its own identical equivalence regimes.

The EU’s proposed text for the financial services chapter of the UK-EU free trade agreement (“FTA”) provided for little more than UK financial services to be able to set up subsidiaries and seek authorisation in the EU and vice versa.  The EU’s chief negotiator rejected the UK’s still limited but more extensive proposals as “unacceptable”.

For a fuller discussion of the EU and UK financial services proposals for the UK-EU FTA, see our client briefing, “Equivalence and the financial services content of the draft UK-EU free trade agreements”.

Ten things for asset managers to note

We have set out, in no particular order, ten points for asset managers to remember or action.

1. Clearing across the UK-EU border will continue as now

Prior to legal Brexit on 31 January, ESMA made provision in the event of a no-deal Brexit to give 12 months temporary recognition to the three UK central counterparties (“CCPs”), LCH Limited, ICE Clear Europe Limited and LME Clear Limited, and to the UK central securities depository (“CSD”), Euroclear UK and Ireland Limited.  These permissions lapsed when the WA was signed and the UK entered the TIP.

It has been reported by Reuters and the Financial Times that the Commission intends to make provision for a similar, time limited, temporary recognition after IPCD.  The length of the temporary recognition has not been confirmed, but it is expected that it will be 12 months.  The Commission has taken this decision to address the possible risks to financial stability related to the specific area of derivatives clearing.

Also prior to legal Brexit, HM Treaury (“HMT”) set up a 12 month temporary recognition regimes for EEA CCPs and CSDs under which those EEA CCPs and CSDs which have given notice that they want to participate in the regime would be recognised.  HMT has repurposed this regime so that it will take effect after IPCD and those CCPs and CSDs which have already given notice do not need to do so again.

2. Delegation of fund management functions across the UK-EU border will continue as now

Prior to legal Brexit memoranda of understanding (“MoUs”) were entered into between the FCA, ESMA and the EU27 national competent authorities in order to permit the regulatory and supervisory co-operation necessary for delegation of fund management functions in accordance with Art 20 AIFM directive and Art 13 UCITS directive. 

On 17 July the FCA announced that all parties had agreed to confirm that the MoUs “remain relevant and appropriate to ensure continued good cooperation and exchange of information” and that they “will come into effect at the end of the transition period”.

Read our latest briefing on MoUs, "UK-EU Memoranda of Understanding to come into force on 1 January 2021". 

3. ESMA guidance will continue to remain persuasive in the UK as now

Under the EUWA, guidance and other non-legislative material produced by ESMA and the other ESAs does not become part of UK law.  The EU laws that give the ESAs power to give guidance are, however, ”onshored”. 

In Policy Statement PS19/5 “Brexit Policy Statement: Feedback on CP18/28, CP18/29, CP18/34, CP18/36 and CP19/2” the FCA confirmed that,

“we consider that the EU non-legislative material will remain relevant post-exit day to the FCA and market participants in their compliance with regulatory requirements, including provisions in our Handbook.”  (Appendix 3, para 8).

Accordingly, as long as and to the extent the UK retains onshored EU financial services rules unamended, ESMA guidance on the meaning of those rules will remain persuasive, but not binding.

4. UK UCITS will continue to be able to invest in EEA assets as now

In Consultation Paper CP18/28 “Brexit: proposed changes to the Handbook and Binding Technical Standards – first consultation” the FCA proposed allowing UK UCITS schemes to continue to have the freedom to invest in EEA (non-UK) assets, and asked for stakeholders’ views.  PS19/5 “Brexit Policy Statement: Feedback on CP18/28, CP18/29, CP18/34, CP18/36 and CP19/2” confirmed that the eight respondents to the question agreed.  Some stakeholders asked for further freedoms to be given to UK UCITS,

“however, our current exercise focused purely on correcting deficiencies arising from Brexit in the Handbook and in BTS.  A change to the investment powers of UK UCITS beyond those of UCITS before Brexit is outside the scope of the Brexit onshoring exercise.” (Para 6.21, PS19/5)

5. Payments in Euros across the UK-EU border will continue as now

On behalf of the UK, UK Finance has acceded to the European Payment Council’s Single Euro Payment Area (“SEPA”) which means that the UK will remain within the geographic scope of SEPA.  Those UK payment service providers (“PSPs”) which are participants in SEPA will continue to be able to make SEPA Credit Transfer (“SCT”) and SEPA Direct Debit (“SDD”) transactions to and from the UK and within the UK.

See the EPC announcement, “Brexit from 1 January 2021 onwards: get ready for the end of the transition period”.

6. EU27 firms newly subject to UK regulation will have a 15 month grace period to achieve compliance with non-critical regulations

Under the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019, HMT has the power to permit the FCA, Bank of England and the PRA to make transitional provisions, known as the temporary transitional power (“TTP”), to make modifications in respect of firms newly subject to UK regulation.

15 month grace period

In PS19/5 the FCA have announced that they will use their TTP powers to waive or modify changes to regulatory requirements which have been amended under the EU (Withdrawal) Act to give firms newly subject to UK regulation following exit day a period of 15 months to comply with those regulations.

In a press release the FCA said that:

“We intend to use [the TPP] so firms and other regulated entities do not generally need to prepare now to meet new UK regulatory obligations.  In most cases, we plan to allow firms a period of 15 months to adapt to these changes.”

Immediate compliance

In its 1 February 2019 press release on the use of its temporary transitional power, the FCA stated that:

“There are some areas where it would not be consistent with our statutory objectives to grant transitional relief.  In these areas only, we expect firms and other regulated persons to begin preparing to comply with changed obligations now.”

These are:

  • Firms subject to the MiFID II transaction reporting regime, and connected persons (for example approved reporting mechanisms)
  • Firms subject to reporting obligations under EMIR
  • EEA issuers that have securities traded or admitted to trading on UK markets
  • Investment firms subject to the 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 IPCD
  • 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

Even in respect of those regulations with which the FCA expects immediate compliance, such as transaction reporting, there is some leeway,

“we expect firms and other regulated entities to undertake reasonable steps to comply with the changes to their regulatory obligations by exit day.  Firms that are not able to comply fully with the regime on 29 March 2019 will need to be able to back-report missing, incomplete or inaccurate transaction reports as soon as possible.”  (Para 3.5, PS19/5)

7. Temporary Permission and Recognition Regimes will come into force

UK temporary permissions

Those firms, funds and market participants which gave notice to the relevant UK financial services regulator prior to 31 January 2020 will have the benefit of temporary permission and recognition regimes (“TPRs” and “TRRs”).  Firms, funds and market participants which did not previously give notice but now want to participate in the TPR can do so by giving notice from 20 September until a date not yet announced before the end to the TIP, probably in late December 2020:





Temporary Recognition Regime

1 year


Transitional Regime

6 months

Credit rating agencies (“CRAs”)

Temporary Recognition Regime

1 year

Data service reporting providers (“DRSPs”)

Temporary Authorisation Regime

1 year

Electronic money institutions (“EMIs”)

Temporary Recognition Regime

1 year


Temporary Permission Regime

Up to 3 years depending on landing slot


Temporary Permission Regime

Up to 3 years depending on landing slot

Payment institutions (“PIs”)

Temporary Recognition Regime

1 year

Trade repositories (“TRs”)

Temporary Recognition Regime

1 year

See our latest client briefing on the TPR: “FCA announces re-opening of TPR notification window in September”.

See also our TPR flowcharts:

EU temporary permissions

Other than the temporary permissions regime for CCPs and CSDs discussed at point 1 above, the EU does not intend to provide any further temporary permission regimes.  Its position, all along, has been that UK financial services firms which wish to continue to sell into EU27 markets should seek appropriate authorisation in an EU27 member state.

EU27 temporary permissions

Although arguably solely the preserve of the European Supervisory Agencies (“ESAs”) and the Commission, prior to legal Brexit, EU27 NCAs and national parliaments legislated for various temporary permissions and run-off regimes for UK participants in their financial services markets.  This was a patchwork which addressed various national concerns in a variety of different ways.  For instance, Luxembourg was concerned to ensure cross border management of assets, while Ireland was concerned about retail insurance.

We are not aware of any such temporary permissions and run-off regimes having been put in place for after IPCD yet, however, we expect a similar patchwork to emerge as 31 December approaches.

Financial Services Contracts Regime (“FSCR”) will apply to those firms, funds and financial market participants not in the TPRs or TRRs

The Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019 will permit firms that:

  • do not submit a notification to enter into the TPR
  • are unsuccessful in securing, or do not apply for, full UK authorisation through the TPR route (and leave the TPR)

to continue to service UK contracts entered into before IPCD or before exiting the TPR for a limited period.

The FSCR has been established to allow EEA-based firms to run-off existing UK contracts and to conduct an orderly exit from the UK market.  Unlike the TPR, the FSCR will not allow firms in the regime to undertake any new business in the UK.  The FSCR will provide that a firm is able to carry on a regulated activity only where it is necessary for the performance of a pre-existing contract (which is a contract made before IPCD, where a firm enters the FSCR on IPCD), along with certain other specified activities.  It will not be possible to enter into new contracts under the FSCR.

The FSCR will permit a run-off period of 5 years for non-insurance contracts and 15 years for insurance contracts.

See our client briefing, “Brexit and contractual continuity – how no deal will work becomes clearer”.

8. EU27 and UK national private placement regimes (“NPPRs”) are not all the same

The UK and each EU27 member state have in place NPPRs which permit a route to market for funds on a case by case basis.  These NPPRs all include investor information disclosure and various annual reporting requirements, however, some EU27 member state have additional registration, notification or approval requirements.  This may affect the timing of any ongoing marketing from the UK into the EU27 and vice versa and highlights the need for EU27 managers to consider the TPR, to the extent that there is still time, and UK managers to consider any EU27 temporary permission regimes which may arise.

Our guide “Helping you through changing times - Our European Brexit tracker for financial services institutions” provides a quick overview of the current position in relation to UK funds and UK fund managers seeking to sell services into EU27 countries after Brexit, and is regularly updated. 

9. HMT to temporarily find EEA financial services regimes equivalent to UK financial services regime

The Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 will contain a time-limited power for Treasury ministers to make directions that EEA states are equivalent for the following onshored regimes (listed in schedule 1 of the Regulations), for up to 12 months after exit day:

  • Benchmarks Regulation
  • Capital Requirements Regulation
  • Credit Rating Agencies Regulation
  • European Market Infrastructure Regulation
  • Market in Financial Instruments Regulation
  • Prospectus Directive
  • Securities Financing Transactions Regulation
  • Short Selling Regulation
  • Solvency 2 Regulation
  • Transparency Directive

After this power expires, and also for any third country outside of the EEA from exit day, HMT must make equivalence decisions by regulations.

10. Divergence has begun

In a written ministerial statement dated 23 June 2020, the Chancellor of the Exchequer, Rishi Sunak, announced a number of matters in which the UK intends to diverge from the EU in respect of the processes by which it delivers certain shared financial services regulatory policy outcomes, while retaining the same policy outcomes as its goal:

“The UK played a pivotal role in the design of EU financial services regulation.  The Government remains committed to maintaining prudential soundness and other important regulatory outcomes such as consumer protection and proportionality.  However, rules designed as a compromise for 28 countries cannot be expected in every respect to be the right approach for a large and complex international financial sector such as the UK.  Now that the UK has left the EU, the EU is naturally already making decisions on amending its current rules without regard for the UK’s interests. We will therefore also tailor our approach to implementation to ensure that it better suits the UK market outside the EU.”


The UK will not be implementing settlement discipline regime set out in the EU’s Central Securities Depositories Regulation (“CSDR”), which is due to apply in February 2021.  UK firms should instead continue to apply the existing industry-led framework.


The UK will not be incorporating the reporting obligation of the Securities Financing Transactions Regulation (“SFTR”) for non-financial counterparties, which is due to apply in the EU from January 2021, into UK law.

EMIR Refit Regulation

HMT will publish legislation to complete the implementation of the Regulation amending the European Market Infrastructure Regulation (“EMIR”) to improve trade repository data and ensure that smaller firms are able to access clearing on fair and reasonable terms.


HMT will amend the Benchmarks Regulation (“BMR”) to ensure continued market access to third country benchmarks until the end of 2025.  It will publish more information in July 2020.


HMT will amend the Market Abuse Regulation (“MAR”) to confirm that both issuers and those acting on their behalf must maintain their own insider lists, and to change the timeline issuers have to comply with when disclosing certain transaction undertaken by their senior managers.


HMT plans to amend the UK's packaged retail and insurance-based investment products (“PRIIPs”) regime and address potential risks of consumer harm.  It is expected that the UK will abandon the heavily criticised PRIIPs Key Information Document (“KID”) in favour of an appropriately modified version of the successful UCITS Key Investor Information Document (“KIID”). 


To minimise uncertainty, the Government and the PRA and the FCA propose to introduce the new Investment Firms Prudential Regime (“IFPR”) and updated rules for credit institutions in line with the intended outcomes of the EU’s Investment Firms Regulation and Directive and the second Capital Requirements Regulation.  The Government and the PRA do not intend to require PRA-designated investment firms to re-authorise as credit institutions, unlike the EU regime.


The UK already has in place a minimum requirement for own funds and eligible liabilities (“MREL”) framework in line with international standards.  The deadline in Bank Recovery and Resolution Directive II (“BRRD II”) for institutions and entities to comply with end-state MREL requirements is 1 January 2024.  “Given this is after the end of the Transition Period, it is right that the UK exercises its discretion about whether to transpose those requirements.”  At the time of writing, the UK Government has not indicated how it intends to exercise that discretion.

Solvency II

The UK Government plans to review certain features of Solvency II to ensure that it is properly tailored to take account of the structural features of the UK insurance sector.

LIBOR transition

The Financial Services Bill will amend the Benchmarks Regulation 2016/1011 as amended by the Benchmarks (Amendment) (EU Exit) Regulations 2018, to ensure that FCA powers are sufficient to manage an orderly transition from LIBOR.

See our client briefing on divergence in the regulation of derivatives: “UK regulation of derivatives to become less… derivative”.

The scale of the divergence announced, which involves achieving shared policy outcomes by different processes, doesn’t amount to significant divergence.  The EU has recognised as equivalent third country financial regulation in which such shared regulatory outcomes are achieved by substantially more divergent regulations than UK regulation is or will become under these plans. 

However, if the EU is looking for some basis on which to justify withholding a finding of equivalence for the UK in respect of some or all of its financial services equivalence regimes, the divergence the Chancellor has announced provides it.

Keeping clients informed about Brexit

In the FCA’s webinar on its Brexit preparations broadcast back in February (unfortunately no longer available online), one point the FCA was at pains to emphasise was that firms should ensure that they communicate to their clients the issues that Brexit poses for firms and for clients’ investments.

How we can help

If you need help assessing how Brexit may affect your firm and your clients’ investments and communicating that to clients, we are able to 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.

To see our client briefings on the wide range of implications of Brexit, visit our Brexit hub.