RegZone reporting on Brexit for financial services firms
Until May of this year, RegZone published a weekly email update with Brexit news and commentary. Over the summer we have produced a fortnightly Brexit news report which was on the RegZone website (but not sent out by email). You can access the previous reports here. As promised, we are now reverting to a weekly commentary distributed by email.
Does HMG have a Brexit policy for FS?
The current Political Declaration (PD) text reflects Mrs. May’s plans for the future relationship, with close cooperation in the goods sector and a complete break in services and FS. Mr. Johnson’s administration has not said anything very concrete about its policy for FS. It would now be possible for HMG to pursue a more balanced approach as between goods and services; this could mean stronger wording in a revised PD setting out a closer relationship in FS.
On 2 October, HMG finally delivered its long-awaited proposals for revisions to the Protocol to the Withdrawal Agreement (WA) on Ireland/Northern Ireland. This took the form of a public letter from the Prime Minister to the European Commission President and a draft text for a ‘new’ Protocol (which has not been published). HMG also released an explanatory memorandum about the ‘amended’ draft Protocol (see Document 3 below). In his letter Mr. Johnson explains the new position of the UK government and repeats previous statements about his policy for the future UK/EU relationship –
‘….the backstop [under the version agreed by Mrs May) acted as a bridge to a proposed future relationship with the EU in which the UK would be closely integrated with EU customs arrangements and would align with EU law in many areas. That proposed future relationship is not the goal of the current UK Government. The Government intends that the future relationship should be based on a Free Trade Agreement in which the UK takes control of its own regulatory affairs and trade policy.’
HMG’s proposals for the Protocol were heavily influenced by a report published by the Alternative Arrangements Commission (the AAC) in July. Subsequently on 3 September, the AAC published draft text for a revised WA and PD and a related guide which stated - ‘The new government’s goal is “as frictionless trade as possible”. The PD and WA have therefore been amended to accord with the government’s new position which is that the end state for the UK and EU is a comprehensive FTA in both goods and services, allowing the UK capacity to diverge regulations, but with as much regulatory cooperation and deemed equivalence as possible.’
It is slightly curious that the AAC took it upon itself, not merely to deal with its recommendations on Ireland, but to prepare amendments to reflect its understanding of HMG’s new policy on the future relationship and, indeed, on all aspects of the WA and PD included amendments relevant to/about FS. The FS amendments are summarised in our RegZone report here (see item 5). This revised PD text is consistent with the new vision for an EU/UK FTA above; the new text includes provisions to protect the UK in relation to new EU legislation during the transition period and states - ‘The Parties should agree, in line with WTO rules, the greatest possible degree of regulatory recognition and deemed equivalence between their regulatory systems, taking full account of the fact that their regulatory systems will be identical on day one of Brexit. The Parties shall agree a mechanism to manage divergence as it occurs so that neither Party can remove regulatory recognition or a deemed equivalence finding without good reasons.’ It proposes a specific dispute settlement mechanism for FS and places ‘best endeavours’ obligations on the both sides to complete equivalence assessments by the end of June next year. These are all improvements on the text agreed by Mrs. May. The AAC wording is high-level, but it appears to reflect a version of ‘enhanced equivalence’ with closer cooperation and improved procedures to protect UK interests.
At the time of writing, it seems that the odds are against a revised WA being agreed before the end of October, so the question of the PD text would not arise immediately. If, and when, HMG does, find itself negotiating a revised PD, then it would come as no surprise if the UK proposals were similar to the AAC drafting.
1. FCA: Primary Markets Bulletin 24
Topics include changes to the knowledge base; an update on Brexit; an update on the prospectus regulation; proposals with regard to the European Single Electronic format requirements. The full bulletin can be accessed here.
The Bulletin reminds firms that the changes outlined in PMB 21 which concerns Short Selling and Market Abuse regulation and PMB 22 will come into force immediately on exit in a no-deal scenario. PMB 22 contained FCA advice on key changes to the Listing Rules, Disclosure Guidance, Transparency Rules and the Prospectus Rules that will apply to the UK post exit. The FCA have in this bulletin stated that: ‘The content of PMB 22 remains substantially correct and relevant, except that the Official Listings SI is amended by the Prospectus Amendment SI. … there are also a new features of the Prospectus Regulation, such as the universal registration document.’
The European Single Electronic format requirements (ESEF) are the new format for preparing the annual financial report that issuers are required to make public under the Transparency Directive. The FCA is proposing implementing ESEF in order to comply with the Transparency Directive.
2. ESMA: 2020 Work Programme
ESMA has published its 2020 programme, which highlights the implementation of its new mandates (including EMIR and cross-border funds distribution) and enhanced role in various areas including direct supervision, supervisory convergence, investor protection, relations with third countries, sustainability and technological innovation. ESMA also sets out its work in relation to Brexit. ESMA have stated that in a no deal scenario ESMA will ‘ focus on ensuring the immediate risks and issues are managed’ and where a withdrawal agreement is agreed, ESMA will be involved in the equivalence process; ‘providing input in the adoption of equivalence decisions on the UK, the ongoing monitoring of those decisions, and ensuring appropriate supervisory convergence within the EU.’
3. ESMA: Speech by Steven Maijoor
Text of Steven Maijoor’s speech of 4 October 2019 follows. Topics include: enhancing ESMA’s role and responsibilities; strengthening the supervision of EU and non-EU CCPs and Brexit. Important changes include a more stringent system for non- EU CCPs, ‘ a proportionate two tier system is introduced in order to classify whether a non-EU CCP is systemically important or not for the Eu financial system.’ Mr Maijoor stated that ESMA in regards to Brexit intends, ‘ in the coming days.. publish several technical statements recapping the full list of measures issued previously by ESMA and some measure that require updates.’
4. The Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018/1201
A correction slip has been published for this SI.
5. Letter from Boris Johnston to Jean Claude Junker
Boris Johnston’s letter of 2 October 2019, setting out the UK’s proposals for a new protocol on Ireland and Northern Ireland. This was accompanied by an explanatory note which is available here.
6. FIA: Speech by FIA President in Frankfurt
In his opening remarks, Walt Lukken discussed what he saw as the regulatory challenges facing the European cleared derivative market. Regarding Brexit he stated: ‘FIA worked with the European Commission to gain a one-year temporary equivalence for clearinghouses to minimize disruption to our markets. Unfortunately, this relief [is] ending next spring with no solution for continued access… Next month FIA will work with other trades and industry participants to formally ask the E.U. to extend the one-year equivalence as the uncertainly around Brexit drags on. We will continue to reiterate our call for temporary equivalence for trading venues and repositories’
7. OFGEN: No-deal EU exit REMIT contingency arrangements
OFGEN has published a letter which is intended to provide market participants with an update on how the no-deal REMIT contingency arrangements will work.
Other publications from the RegZone Brexit news feed
European Parliament: Brexit
Following a briefing to MEPs on 2 October 2019 by Michel Barnier, the MEP Brexit Steering group has published a statement with regard to the latest UK proposals.
PMO: Statement by Boris Johnson
Text of Boris Johnson’s statement to HoC on Brexit negotiations of 3 October 2019.
HMT: Post-Brexit Funding
HMT states that a package of measures is to be announced by Sajid Javid over the coming days. He has confirmed that guaranteed funding to organisations in receipt of certain EU programme funding will be £4.3bn in 2019/20 and £16.6bn over its lifetime.
EC: Statement by Jean-Claude Juncker
The EC has published a note with regard to Jean-Claude Juncker’s phone call with Boris Johnson on 2 October 2019.
HoC: Sanctions policy and implementation
This research briefing has been published ahead of a Westminster Hall general debate scheduled for 3 October 2019.
HoL: UK’s Withdrawal from the EU
This HoL Library briefing has been prepared in advance of a HoL debate scheduled to take place on 2 October 2019.
Department for Exiting the EU: Brexit Preparedness
The Department for Exiting the EU has published correspondence between Stephen Barclay and Michel Barnier on Brexit preparedness.