Brexit update for financial services firms - week ending 8 February 2019

1. BOE/ESMA: MOUs

BoE and ESMA have agreed MoUs for the recognition of CCPs and central securities depositories in the event of a no-deal Brexit. Texts of the MoUs have not been published. The BoE press release can be accessed here and the ESMA press release here.

ESMA:

“ESMA has previously communicated, in its public statements of 23 November and 19 December2018, that its Board of Supervisors supports continued access to UK CCPs and to the UK CSD, in order to limit the risk of disruption in central clearing and to avoid any negative impact on the financial stability of the EU. It will also allow the UK CSD to continue to serve Irish securities, and to limit the risk of disruption to the Irish securities market.

ESMA aims to recognise UK CCPs and the UK CSD in a timely manner, where the four recognition conditions under Article 25 of EMIR, and the four recognition conditions under Article 25 of CSDR

are met, respectively. The conclusion of MoUs between ESMA and the BOE satisfies the third recognition condition - establishment of cooperation arrangements - under both regulations.

The MoUs are a statement of intent to consult, cooperate and exchange information in connection with ESMA’s immediate access, on an on-going basis, to all information it requests regarding the CCPs and CSD. They are based on the standard template for the recognition of third country CCPs and amended to reflect the relevant conditions in the two equivalence decisions of the European Commission. The MOUs set out in detail the scope of cooperation and information-sharing arrangements between ESMA and the BOE.

The MoUs ensure that cooperation arrangements have been established regarding the CCPs and CSD and provide ESMA with adequate tools to monitor their ongoing compliance with the recognition conditions and to assess any material risk they pose, directly or indirectly, to the EU or any of its Member States, including to their financial stability.”

2. ESMA: MIFID II supervisory briefing on the supervision of non-EU branches of EU firms providing investment services and activites

This supervisory briefing covers the following topics: supervisory expectations in relation to the authorisation of investment firms; ongoing activities of non-EU branches including reporting and collection of information; and supervisory activity and cooperation with non-EU competent authorities. It also provides information on the implementation of the MiFID II provisions and of the recommendations expressed in the ESMA's Opinion on investment firms published in July 2017. The full publication can be accessed here.

“One of the main concerns in the three ESAs’ Opinions published in preparation to the UK withdrawal from the EU relates to the possibility that firms relocating into the EU from the UK would be managed as empty shells or letter box entities.

The recommendations expressed in the ESMA Opinion on investment firms reflected and stressed existing EU legislative sectorial frameworks and principles according to which applicants submitting a request for authorisation to an EU CA should describe and explain (inter alia) the proposed organisational structure, the governance regime, and the expected geographical organisation of the business.

According to paragraph 49 of the ESMA Opinion, CAs should be satisfied that the use of non-EU branches is based on objective reasons linked to the services provided in the non-EU jurisdiction and does not result in situations where such non-EU branches perform material functions or provide services back into the EU. For example, the set-up of a branch in a non-EU country by a firm would make sense when the firm intends to provide services in that non-EU jurisdiction or to require local marketing support.

In order to assess the abovementioned objective reasons and to assess that non-EU branches do not perform material functions or provide services back into the EU, CAs should consider with attention the programme of operations that applicants will submit in the context of the authorisation procedure under Articles 5 et seq. of MiFID II. In particular, CAs should make their judgment on the substance of the business activity, the organisation, the governance and the risk management arrangements of the applicant in relation to the establishment and the use of branches in non-EU jurisdictions. To enable the identification of hurdles that could prevent the effective exercise of their supervisory functions, CAs should take into account the complexity and clarity of the applicant’s organisational arrangements, the geographical location of the branches of the firm, the activity that the latter would perform and the relationship of the applicant and its branches with other entities of the group.”

3. Draft Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019

The SI amends various UK legislation and retained EU law relating to financial services, in order to address deficiencies arising from Brexit. An explanatory memorandum has been published alongside the text of the SI. The documents can be accessed here. [The government has subsequently withdrawn this draft SI from consideration].

4. Draft European Union Budget, and Economic and Monetary Policy (EU Exit) Reguloations 2019

The SI revokes retained EU law relating to the EU budget, and revokes and partially restates EU law relating to economic and monetary policy. An explanatory memorandum has been published alongside the text of the SI. The documents can be accessed here.

5. The European Union (Withdrawal) Act 2018 (Consequential Modifications and Repeals and Revocations) (EU Exit) Regulations 2018

This SI has been laid before Parliament under the affirmative procedure. The SI can be accessed here.

Other publications from the RegZone Brexit news feed

The Occupational and Personal Pension Schemes (Amendment etc.) (EU Exit) Regulations 2019/192

This SI has been published, along with an explanatory memorandum which can be accessed here.

The Occupational and Personal Pension Schemes (Amendment etc.) (Northern Ireland) (EU Exit) Regulations 2019/193

This SI has been published, along with an explanatory memorandum which can be accessed here.

HoC: Financial Services (Implementation of Legislation) Bill

A HoC library briefing paper has been prepared for the second reading of the Bill on 11 February 2019. The full publication can be accessed here.

HoL EU Financial Affairs Sub-Committee: Brexit-related treaties

The Committee is scrutinising Brexit-related treaties within its remit (including treaties relating to insurance) and is inviting comments from interested parties. The full publication can be accessed here.

Financial Services (Implementation of Legislation) Bill

The Bill has completed its HoL stages and has now presented to HoC. A link to the draft Bill as presented to HoC follows. The draft bill can be accessed here.

PMO/EC: Joint statement by Theresa May and Jean-Claude Juncker

Text of the statement given on 7 February 2019 can be accessed here.

EC: Joint statement by Jean-Claude Juncker and Leo Varadkar

Text of the statement given on 6 February 2019 can be accessed here.

HMT: Draft Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019

Draft Regulations laid before Parliament under paragraph 1(3) of Schedule 7 to the European Union (Withdrawal) Act 2018, for approval by resolution of each House of Parliament. The SI can be accessed here.

EC: Statement by Donald Tusk

Text of Donald Tusk's statement following his meeting with Leo Varadkar on 6 February 2019 follows. The full text can be accessed here.

FCA: Approach to MiFID transparency calculations

Further to ESMA's announcement with regard to the use of UK data in ESMA databases and the performance of MiFID II calculations in the event of a no-deal Brexit, FCA's press release notes that it

expects to set out its approach to using its temporary powers to operate MiFID II in the UK by the end of February 2019. The full publication can be accessed here.

HoC: Brexit timeline: events leading to the UK’s exit from the EU

An updated HoC library briefing has been published. The briefing paper can be accessed here.

ESMA: Statement on the use of UK data in ESMA databases and the performance of MiFID II calculations under a no-deal Brexit

ESMA’s statement sets out the approach it will take on all ESMA IT applications and databases in the event of a no-deal Brexit. The full publication can be accessed here.

CMA: Effects of a "no deal" EU exit on CMA's functions

CMA has published draft guidance on its functions in the event of a no-deal Brexit, which covers, amongst other matters, consumer protection law enforcement. Responses are required by 25 February 2019. The full publication can be accessed here.

CMS RegZone publishes weekly updates (available via email, on-line and via Twitter) on Brexit developments for financial services firms. These provide analysis and commentary on significant developments during the week in question. A daily digest of Brexit news (without analysis or commentary) is also available by email here and online via the RZ news wizard here (both of these can be filtered using the Brexit topic). Links to publications are contained in each update; publications released before the updates commenced in April 2018 can be found in a bibliography here. CMS RegZone publication ‘Where we stand’ provides an overview of the current position in a single report; this is updated regularly to take account of the key developments from the weekly updates.