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Eversheds Sutherland Financial Services Brexit Round Up week commencing 30 July

Eversheds Sutherland Financial Services Brexit Round Up week commencing 30 July

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

31-07-2018

As the political aspects of Brexit start to quieten down since Westminster rose for the summer recess on 24 July, Whitehall has not taken a break and we have seen the first crop of the statutory instruments preparing UK financial services for the risk of a no deal Brexit. Meanwhile the FCA and the BoE have published further details of the temporary permissions regimes for banks and firms and the temporary recognition regime for overseas central counterparties.

Brexit – Negotiations

The Brexit White Paper

We have published a briefing on the financial services aspects of the Brexit White Paper, “Brexit and Enhanced Equivalence: a good deal for financial institutions?”

To read our financial services briefing, click here.

The firm has also published a more general briefing on the proposal in the Brexit White Paper that the UK adopt the EU rulebook for goods and agricultural produce, “The common rulebook in context – reflections on certain aspects of the UK Government’s proposal for a post-Brexit UK-EU relationship”.

To read our general briefing, click here.

To read the White Paper, click here.

HMG slide presentation of the Brexit White Paper

This is designed to sell the Brexit White Paper to various audiences, from Conservative backbenchers to the general public.

To read the presentation, click here.

Barnier’s statement following the July 2018 General Affairs Council meeting

Michel Barnier outlined three questions that he believes to be at the core of discussions surrounding Brexit:

• Are the proposals put forth in the White Paper in line with the integrity of the Single Market and Customs Union and Common Commercial Policy, the indivisibility of the four freedoms, and the autonomy of the decision-making in the EU?

• Are the proposals in the White Paper conducive to a simple transition process, free of additional bureaucracy?

• Do the UK's proposals take the economic interest of the EU into account?

Barnier is rather dry, so it is unclear whether he was being intentionally or unintentionally funny when he said “Brexit cannot, and will not, be a justification for creating additional bureaucracy”.

To read the statement, click here.

European Commission publishes communication on preparing for the UK's withdrawal from the EU

On Financial Services the communication says:

Financial services – Brexit preparedness

“Over the years, the United Kingdom in general and the City of London in particular has become an important financial services centre, also thanks to the Single Market. Many operators, including from third countries, have established themselves in the United Kingdom and operate in the rest of the Single Market based on the passporting rights enshrined in the EU financial services legislation.

“These passporting rights will cease to exist after withdrawal. This means that the provision of financial services from the United Kingdom to EU27 will be regulated by the third country regimes in EU law and in the national legal frameworks of the respective Member State of the EU customers. There will be no Single Market access. Operators in all financial services sectors need to prepare for this scenario if they wish to ensure that there is no disruption in their current business model and that they are in a position to continue serving of their clients. In relation to contracts, at this juncture, there does not appear to be an issue of a general nature linked to contract continuity as in principle, even after withdrawal, the performance of existing obligations can continue. However every type of contract needs to be looked at separately.

“The Commission has published eight notices in this area. The European Supervisory Authorities have provided extensive additional guidance to national competent authorities and to market participants through a series of Opinions. The Commission has also proposed modifications to some of the current supervisory arrangements to cater for potential financial stability implications following the withdrawal of the United Kingdom. The co-legislators are encouraged to adopt these proposals as rapidly as possible.

“Given the potential implications for financial stability, a technical working group, co-chaired by the Bank of England and the European Central Bank, has been set up and is meeting regularly with a focus on risk management in the period around 30 March 2019 in the area of financial services. Additional authorities are participating in analysis on an issue-specific basis. The group will report on its work to the Commission and the responsible authority in the United Kingdom.”

To read the communication, click here.

To read the press release, click here.

Prime Minister takes control of Brexit negotiations (and the weather!)

In a move that formalises what it appears has already been the case for a good while, the PM has transferred responsibility for the Brexit negotiations to No 10 along with yet more key staff (there have been at least two previous transfers of civil servants and special advisers) to No. 10.

White Paper on legislating for the withdrawal agreement between the UK and EU

The government's White Paper: Legislating for the Withdrawal Agreement between the United Kingdom and the European Union sets out its early expectations for what will now be known as the European Union (Withdrawal Agreement) Bill (“EUWAB”). The central functions of the Bill will be to:

• act as the primary means by which the rights of EU citizens will be protected in UK law

• legislate for a time-limited transition period (also referred to as an implementation period)

• create a financial authority to manage the specific payments to be made under the financial settlement with the EU, with appropriate parliamentary oversight

The key feature of EUWAB is that if the transitional or implementation period 30 March 2019 to 31 December 2020 comes into effect on exit day, substantial parts of the European Communities Act 1972 (“ECA 1972”) will be saved, including Section 2(1) that gives effect to “directly effective” EU law in the UK. Directly effective EU law includes EU regulations, decisions of the EU Council and judgments of the CJEU. ECA 1972 will still be formally repealed on 29 March 2019 but its effective continuation, while a practical and effective solution to the problem of how to ensure EU law continues to apply to the UK during the transition period, is likely to be politically controversial.

Expect yet more Parliamentary fireworks and knife edge votes over EUWAB and for the text to be heavily amended before it becomes law, not just to reflect the parliamentary process but also to reflect ongoing developments in the negotiations.

To read the EUWAB White Paper, click here.

To read the DExEU press release, click here.

Brexit – Statutory Instruments

BoE’s letter to EU systems designated under the Settlement Finality Directive (“SFD”)

David Bailey, Executive Director, Financial Market Infrastructure at the BoE has written to CEOs of operators of systems currently designated under the SFD to set out how it envisages the future UK framework for settlement finality designation of EU systems will operate.

The BoE anticipates that UK domestic law requirements for the designation of systems not governed by UK law will in essence be the same as the requirements for the designation of systems governed by UK law set out in the schedule to the Settlement Finality Regulations.

An EU system may wish to apply for UK SFD designation if either of the following apply:

• it has a participant or participants established in the UK

• it has an indirect participant or participants that are considered as participants, as defined in the SFD, established in the UK

The BoE does not envisage that it will be a requirement of UK law for a non-UK system to have any form of UK SFD designation in order to have UK participants.

To read the letter, click here.

Post-Brexit settlement finality protections: HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act

This legislation will:

• allow designations of non-UK financial market infrastructure (“FMIs”) under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 and give the BoE functions and powers to designate these FMIs

• provide for a temporary designation regime to enable non-UK FMIs to continue to benefit from UK protections currently provided for by the SFD. This regime will be open to EU systems currently designated under the SFD in advance of permanent designation being granted

To read the HMT statement, click here.

Draft of “The Financial Regulators’ Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018” published

The purpose of the Regulations is to set out the powers of the UK regulators (that is, the BoE, the PRA, the FCA and the Payment Systems Regulator (“PSR”)) concerning the domestication of EU legislation containing regulatory technical standards (“RTS”) or implementing technical standards (“ITS”). Among other things, the Regulations give the regulators the power to make EU exit instruments to correct "deficiencies" in domesticated technical standards to ensure they are legally effective after Brexit.

To read the draft, click here.

To read the draft explanatory memorandum, click here.

Draft of “The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018” published

The purpose of the Regulations is to ensure that the regulatory regime for central counterparties (“CCPs”) established by EMIR (the Regulation on OTC derivatives, CCPs and trade repositories) functions effectively after Brexit, once EMIR has been retained in UK law.

Among other things, the Regulations:

• transfer ESMA’s functions relating to the recognition of third country CCPs to the BoE. They also transfer to HM Treasury the European Commission’s function under Article 25 of EMIR of determining whether third countries have an equivalent regulatory regime

• give the BoE powers to assess and make decisions on the recognition of non-UK CCPs before exit day. From exit day a non-UK CCP will only be able to provide clearing services in the UK if it has been recognised by the BoE

• establish a temporary recognition regime (“TRR”) enabling third country CCPs to continue their activities in the UK for a limited period after exit day if they are currently able to provide those activities in the EU under EMIR and have notified the BoE before exit day that they intend to continue doing so in the UK

• enable the BoE to charge fees from non-UK CCPs that are providing services to the UK

To read the draft, click here.

Draft of “EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018” published

The purpose of the draft Regulations is to:

• remove references to the passporting framework set out in the Financial Services and Markets Act 2000 (“FSMA”) in FSMA itself and in other UK legislation

• Establish a temporary permissions regime (“TPR”) to enable EEA firms currently operating in the UK using a passport to continue their activities in the UK for a limited period after exit day. The Regulations envisage that that the TPR will be in place for up to three years after exit day

To read the draft, click here.

To read the explanatory information, click here.

Brexit – Temporary Permissions and Recognitions

FCA update webpage: The temporary permissions regime for inbound passporting EEA firms and funds – our approach

The temporary permissions regime will enable relevant firms and funds which passport into the UK to continue operating in the UK if the passporting regime falls away abruptly when the UK leaves the EU. Find out how the regime will work and how the FCA will apply their rules, ahead of a formal consultation in Autumn 2018.

Draft SIs reveal that the TPR will last for up to three years after Brexit.

To see the FCA webpage, click here.

BoE new webpage: Temporary permissions and recognition regimes

Temporary permissions regime

“HMT’s draft SI sets out that to be eligible for entry into the temporary permissions regime, firms must be authorised to carry on a regulated activity in the UK under the EU passporting regime. They will also have to inform the relevant regulator before exit day of their intention to enter into the regime. PRA firms can do this either by a notification to the PRA (if the firm has not submitted an application for authorisation before exit day) or by an application for authorisation submitted before exit day (applications submitted prior to the SI being legislated would be sufficient for these purposes as well).

“The temporary permissions regime would deem firms to have a Part 4A permission for a maximum of three years. HMT would be able to extend the duration of the regime by increments of twelve months. Once in the regime, the PRA would have the same powers in relation to these firms as if they were a Part 4A authorised firm. Firms would be subject to the same obligations and supervisory framework as if they were a Part 4A authorised firm.”

Temporary recognition regime

“Non-UK CCPs will be eligible for the temporary recognition regime if they are currently permitted to offer clearing services in the EU. To enter the scheme, they will need to inform the Bank of England before exit day of their intention to provide clearing services in the UK. They can do this either by a notification to the Bank or by submitting an application for recognition before exit day.

“CCPs in the temporary regime will be deemed to be recognised to provide clearing services in the UK for a maximum of three years, extendable by HMT in increments of twelve months. CCPs that have not already submitted an application for recognition must do so within six months of the start of the temporary regime.”

Next steps

“Firms are encouraged to continue engaging with the Bank and PRA on their authorisation and recognition processes, including on how to make best use of the additional time provided by the implementation period in their planning. The Bank and PRA expect to publish further guidance to relevant firms on the temporary permissions and recognition regime in due course, including the notification process for entry.”

To read the BoE webpage, 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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