Brexit update for financial services firms - 21 December 2018 to 4 January 2019

1. EC: BREXIT IMPLEMENTING DECISIONS

The following have been published in the Official Journal: Commission Implementing Decision (EU) 2018/2030 of 19 December 2018 determining, for a limited period of time, that the regulatory framework applicable to central securities depositories of the United Kingdom of Great Britain and Northern Ireland is equivalent in accordance with Regulation (EU) No 909/2014 of the European Parliament and of the Council and Commission Implementing Decision (EU) 2018/2031 of 19 December 2018 determining, for a limited period of time, that the regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern Ireland is equivalent, in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council. The Commission Implementing Decision 2018/2030 can be accessed here and the Commission Implementing Decision 2018/2031 can be accessed here.

2. FMLC: FINANCIAL SERVICES (IMPLEMENTATION OF LEGISLATION) BILL

FMLC has written to the Treasury (HMT) raising concerns with regard to legal certainty, specifically in relation to "in-flight" legislation. FMLC suggests that the Bill fails to take into account EU Level 2 legislation that does not come into effect before exit day and which will not therefore be retained under the Withdrawal Act and the list in Clause 1 of the Bill limits the scope of HMT's power to make regulations to implement “in-flight” legislation to only those identified in the list. The report can be accessed here.

“The "in-flight" legislation listed in Clause 1(2) does not take into account those pieces of E.U. Level 2 legislation—like Commission Delegated Regulations which implement regulatory technical standards ("RTS") issued by European Supervisory Authorities in support of Level 1 legislation—that do not come into effect before exit day and will not therefore be retained under the Withdrawal Act. Anticipating this, HM Government has, by way of the Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 (the "Financial Regulators' Powers Regulations"), bestowed upon the Financial Conduct Authority (the "FCA"), the Prudential Regulation Authority (the "PRA"), the Bank of England and the Payment Systems Regulator (collectively the "regulators") the power to make "standards instruments" prescribing U.K. binding technical standards ("U.K. BTS"). "Onshoring" statutory instruments published under the Withdrawal Act contain provisions permitting regulators to make such BTS.

[…]

A second complexity arises because the list in Clause 1 of the Bill limits the scope of HM Treasury's power to make regulations to implement "in-flight" legislation to only those identified therein. The FMLC is given to understand that the list sensibly comprises only those pieces of "in-flight" legislation which would fall under the purview of HM Treasuiy. The effect of this, however, is that those pieces of "in-flight" legislation which are not specific to financial services but which nevertheless impose obligations and requirements on financial markets participants will not be implemented by this means post-Brexit.”

3. FMLC: MARKETS IN FINANCIAL INSTRUMENTS - ONSHORING

FMLC's report considers legal uncertainties arising from the changes proposed by the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018, including equivalence, information and thresholds published in the EU after exit day; and the new powers and functions given to FCA. The full report can be accessed here.

“This paper considers legal uncertainties arising from the changes proposed by the draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (the “draft MiFI SI”). The draft MiFI SI makes amendments to retained law derived from Directive 2014/65/EU on markets in financial instruments (“MiFID II Directive”) and Regulation (EU) No 600/2014 on markets in financial instruments (“MiFIR”) (known collectively as “MiFID II”). These are the key pieces of E.U. legislation which govern the buying, selling and organised trading of financial instruments, such as shares, bonds, units in collective investment schemes and derivatives. MiFID II has been implemented in the U.K. through several pieces of domestic secondary legislation, including the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (the “MiFI Regulations 2017”), the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the “RAO”) and the Data Reporting Services Regulations 2017. Each of these is also amended by the draft MiFI SI.”

4. DRAFT FINANCIAL SERVICE CONTRACTS (TRANSITIONAL AND SAVING PROVISION) (EU EXIT) AND DRAFT FINANCIAL SERVICE CONTRACTS (TRANSITIONAL AND SAVING PROVISION) (EU EXIT) (NO. 2) REGULATIONS 2019

Draft Regulations laid before Parliament under paragraphs 1(1) and (2) and 12(1) of Schedule 7 to the European Union (Withdrawal) Act 2018, for approval by resolution of each House of Parliament. The first draft SI can be accessed here and the second draft SI can be accessed here. The explanatory note for the regulations can be accessed here.

“Upon exit from the EU, EEA financial services providers who hold existing EEA passporting permissions to carry out regulated activity in the UK will lose these rights. This means that where these providers do not enter the UK’s temporary permissions regimes (as set out in previously published policy notes) they may not be able to meet existing contractual obligations, as performing regulated activities in the UK without these permissions could be a criminal activity. This could lead to, for example, EEA firms lacking permissions to pay insurance claims to UK consumers. In addition, there are risks to UK firms if CCPs or TRs do not enter, or are removed from, the relevant temporary regime without the necessary permissions to continue to provide services in the UK.

This SI provides a run-off mechanism to several temporary regimes which will allow existing contracts to continue being serviced post-exit:

• the Temporary Permissions Regime (TPR) for FSMA firms
• the TPR for payments and e-money institutions
• the Temporary Recognition Regime (TRR) for CCPs and the Temporary Registration Regime (TRR) for Trade Repositories (TRs)

This will mitigate the risk of a residual cliff-edge for providers that are not captured by the above temporary regimes.”

Other publications from the RegZone Brexit news feed

HoL: Withdrawal Agreement: Section 13(1)(c) of the European Union (Withdrawal) Act 2018

This HoL library briefing paper has been prepared in advance of a debate scheduled to take place on 9, 10 and, provisionally, 14 January 2019 on " section 13(1)(c) of the European Union (Withdrawal) Act 2018, taking note of the negotiated withdrawal agreement and the framework for the future relationship". The full paper can be accessed here.

Draft Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019

Explanatory notes in relation to this SI have been published and they can be accessed here.

ESMA: Joint meeting of the Board of Supervisors and the SMSG

ESMA has now published a note of a meeting held on 8 November 2018. Topics include: no-deal Brexit, fintech and MiFID II implementation. The note can be accessed here.

ECB: Interview with Sabine Lautenschläger

ECB has published the text of an interview conducted on 30 December 2018. Topics include ECB and preparations for no-deal Brexit. The full text can be accessed here.

ECB: Supervisory priorities for 2019

ECB has set out its supervisory priorities for 2019, which include Brexit preparations, how banks measure and manage risks such as cyber risk and credit risk. The full publication can be accessed here.

HoC: What if there's no Brexit deal?

This updated HoC library briefing considers how a no-deal Brexit might come about, the constitutional implications for the UK and the devolved administrations, and what the impact might be in a range of policy areas (including financial services). The full briefing paper can be accessed here.

HoC: The EEA

This library briefing paper outlines the institutional structure of the EEA, its pros and cons and the debate over withdrawal from the EEA. The full paper can be accessed here.

HoL: Leaving the EU: stability of the UK's union

This library briefing has been prepared ahead of a HoL debate on 17 January 2019. The full paper can be accessed here.

HoC: Could the Withdrawal Agreement be terminated under international law?

This HoC Library briefing note considers provisions in the Vienna Convention on the Law of Treaties for terminating and denouncing treaties and arguments about whether these might apply in this particular case. The full report can be accessed here.

Department for Exiting the EU: UK government's preparations for a 'no deal' scenario

This guidance note has been updated and can be accessed here.

HMT: Record of the meeting between BoE and HMT of 12 December 2018

HMT has now published the record of the meeting between Mark Carney and Philip Hammond to discuss the November 2018 financial stability report. Topics include: the resilience of the UK financial system to Brexit. The full publication can be accessed here.

Draft Insurance Distribution (Amendment) (EU Exit) Regulations 2019

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

The Mortgage Credit (Amendment) (EU Exit) Regulations 2019

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