Brexit update for financial services firms - week ending 22 March 2019

25 March 2019 Download PDF

In outline:

The start of European Council summit on Thursday 21 March provided the opportunity for the EU to set out the basis for delaying the date (currently 29 March) when the UK will leave the EU - by an extension of the Article 50 period.  If the House of Commons approves the EU/UK Withdrawal Agreement (WA) at a meaningful vote (MV3) (before 29 March), the extension would last until 22 May[1]. If the WA has not been approved, then the extension would only be until 12 April. In the latter event, the European Council would expect the UK to indicate a way forward; in practice a second extension (of any length) would then only be considered on the basis of UK participation in the European Parliament (EP) elections in May. According to the European Council Decision, the earliest date of a ‘no deal’ exit would now be 12 April[2].

Under UK law, the date of the UK’s exit under European Union (Withdrawal) Act 2018 must be amended before 29th March; this involves a statutory instrument (which may have to be laid before MV3 and before the extension date is know – presumably this SI may simply amend the date to 12 April).

If the WA is approved at MV3, the UK would have about 8 weeks to complete the domestic legislative process to implement the WA. This would involve substantive/primary legislation – the European Union (Withdrawal Agreement) Bill. This bill (which the UK Government (HMG) has so far refused to publish before MV3) will implement the WA transitional period (TP) in UK law (and will continue the principles of direct effect and supremacy of EU law as currently applied under the European Communities Act 1972)[3].

FCA has now responded (see Document 2 below) to ESMA’s statement about problems relating to MiFIR trading obligations under the no-deal regime (ND regime) (see our previous update commentary here). FCA still sees problems and seeks further dialogue.

Fears of no-deal and HMG’s abandonment of its goal of preferential access in financial services (FS), are leading to a substantial migration of assets and business from the UK to the EU-27. This week, data was provided by Andrea Enria (chair of the ECB supervisory board), who gave an interview to the FT, and by EY in a survey (see Document 1).  Enria reported that Brexit would result in 24 additional institutions (7 of which are significant and thus subject to direct ECB regulation under the SSM)[4]  in the eurozone under the SSM and the expansion of existing institutions in EU-27, with planned transfers of assets of Euro 1.2 trillion under the SSM (of which 90% were accounted for by the 7 institutions). EY looked at broader questions of migration to the EU with an estimate of £1 trillion, accounted for by movements of client money/assets and balance sheet assets[5].

Nausicaa Delfas of FCA gave a speech about ‘Brexit and beyond’ (see Document 3 below). This looked at the ND regime and broader international policy. For EEA firms doing business in the UK, Delfas emphasised the limits of the Financial Services Contracts Regime (FSCR – see further details in our update here) and encouraged firms, were necessary, to make an application under the Temporary Permission Regime (TPR – see further details in our update here). The deadline is (currently) 28 March. Over 1,000 EU firms and fund managers (representing many more thousands of funds) had already decided to join the TPR. The first authorisation application landing slot for TPR firms is expected to be October to December 2019 and the last to be January to March 2021; firms will be notified after exit day. The position for UK firms was much more patchy across the EU-27 with variants on TPR of some sort in Germany, Spain, France, Ireland, Italy, Luxembourg and the Netherlands. Delfas also referred to the use by FCA of the temporary transition power which will allow firms 15 months to adjust to changes in the UK regime.

Risks remained relating to – client approvals for transfers of business and contracts to EU-27 entities from UK institutions, contract continuity (despite the measures taken) and the lack of EU equivalence decisions (see our previous update and above re the MiFIR trading obligation).

Looking at broader international issues, Delfas referred to the recent UK/US derivative package (see our previous update here for details) and said FCA had put in place ‘numerous arrangements with international counterparts which will enable overseas firms to access the UK and vice versa’; however, no further examples were given. For the future, the speech emphasised the hope that after the TP, the EU could be persuaded to expand/broaden the  mutual recognition/DRC available under third country equivalence; Delfas said only that ‘…there is also a strong basis for both sides to discuss broadening their respective equivalence frameworks ‘. This merely repeats current HMG policy without any indication of the prospects of success.

HMG’s ‘Global Britain’ policy was also evident and there was enthusiasm for international standards. Delfas also emphasised the commitment to bilateral coordination through various structures. She referred to the FCA’s new role in providing technical expertise and advice to support the Treasury (HMT) as HMG develops its positions on its financial services trade policy. Delfas also emphasised the commitment to bilateral coordination through various structures. She referred to the FCA’s new role in providing technical expertise and advice to support HMT as HMG develops its positions on its financial services trade policy. ‘Post-EU, the UK will have the ability to develop its own independent trade policy which will require us to contribute technical support and advice on free trade agreements covering financial services, as well as other mechanisms for enhancing trade and regulatory cooperation.’ Delfas gave a recent example - the Mutual Recognition of Funds (MRF) agreement  with the Hong Kong Securities and Futures Commission (SFC), which supports reciprocal access to each other’s jurisdiction for the marketing and distribution of investment funds covered by the scheme. Delfas emphasised that the DRC/mutual recognition was on the basis of (HMG’s catch phrase) ‘equivalent outcomes’ (rather than harmonised rules). ‘Close and ongoing regulatory cooperation is key to the success of this scheme, and other similar market access arrangements. We therefore support HM Treasury’s aim of expanding the financial regulatory dialogues the UK has in place with priority countries as they will provide a further useful mechanism for ensuring this cooperation going forward’. Delfas added that FCA welcomes the international attention being paid to market fragmentation – in both FSB and IOSCO.'         

This week, Liam Fox announced another ND regime rollover agreement in these terms -  ‘Our negotiators have just initialled a trade agreement with Iceland & Norway for the European Economic Area. This is the 2nd biggest agreement we're rolling over and trade with EEA is worth nearly £30bn. This is on top of the agreement we’ve signed with Liechtenstein.”[6]  This seemed to imply that the UK/EEA-3 single market relationship would continue despite there being no-deal between the UK and the EU. This is obviously not the case; in any event the agreement does not cover FS[7]. In FS, EU temporary equivalence decisions are expected to apply across the EEA-3 under the EEA Agreement principles. For example the European Commission implementing decision on UK central counterparty regulation[8] under EMIR (see our previous update here) is listed as being processed under the EEA Agreement Joint Committee here. Subject to completion of this procedure, the ESMA recognition of UK CCPs would then take effect automatically under the EEA Agreement.  

The UK previously (in December 2018) announced an agreement with the EEA-3 (Iceland, Norway and Liechtenstein) parallel to the UK's proposed Withdrawal Agreement with the EU, known as the "EEA Separation Agreement" [9]. If the WA takes effect, this agreement would temporarily govern aspects of the UK's relationship with the EEA-3 after the TP under the WA. This makes no special provision for FS. HMG hopes that by the end of the TP, the EU will have granted more/broader based equivalence/recognition to the UK (which would apply across the EEA-3 as described above).

[1] It is assumed that the date for the end of the transition period (TP) (subject to extension) of 31 December 2020 under the WA would remain unchanged, and the TP period would just be slightly shorter

[3]The Withdrawal Agreement wil

  • Keep parts of the European Communities Act in force for the duration of the transition period, by amending the European Union (Withdrawal) Act 2018.
  • Make citizens’ rights provisions of the withdrawal agreement directly enforceable in the UK.
  • Retain the current status of EU law, including primacy and direct effect, for the duration of the transition period.
  • Give the UK courts new instructions on their relationship with the European Court of Justice
  • Give ministers powers to make payments to the EU under the “financial settlement” (the divorce bill).

The White Paper can be accessed here.

[5] FT, “UK to lose £1tn of financial assets to Europe due to Brexit” (20 March 2019); FT, “ECB bank supervisor Enria criticises ‘national champion’ mergers” (19 March 2019)

[6] The "Liechtenstein Agreement” would apply when certain Switzerland-EU trade agreements cease to apply to the United Kingdom[6] (Switzerland is also a party to the Liechtenstein Agreement). This does not cover financial services.

[7] On 19 March 2019 the UK announced that it had agreed a temporary agreement with Iceland and Norway on trade in goods (the "Norway-Iceland Trade in Goods Agreement") that would apply if the UK leaves the EU without a deal. The text of the agreement has not been published but see the statement from the Norwegian Ministry of Foreign Affairs and DExEU's description.

[8] COMMISSION IMPLEMENTING DECISION of 30 October 2014 on the equivalence of the regulatory framework of Australia for central counterparties to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories

[9] The full agreement (Agreement on arrangements between Iceland, the Principality of Liechtenstein, the Kingdom of Norway and the United Kingdom of Great Britain and Northern Ireland following the withdrawal of the United Kingdom from the European Union, the EEA Agreement and other agreements applicable between the United Kingdom and the EEA EFTA States by virtue of the United Kingdom’s membership of the European Union) can be found here. A statement from EFTA and the UK's explanatory note on can be found here and here.

1. ECB: Interview with Andrea Enria

Text of Andrea Enria's inteview with the Financial Times follows. Topics include: aspects of banking supervision in the EU; money laundering and Brexit. The full interview can be accessed here.

“We will have seven additional significant institutions coming under our remit as a result of Brexit, 17 new less significant institutions. We see banks primarily moving to or expanding existing operations in the financial hubs in Germany, France, Ireland and the Netherlands. There are also both significant and less significant institutions that are expanding their business in the rest of the EU as a result of Brexit. We are asking banks to provide us with their target operating models on how they will gradually move assets from the UK to the euro area, and we expect around €1.2 trillion of assets to be moved to be under the supervision of the SSM. This is concentrated -- let’s say 90 per cent -- in the seven largest institutions. So that’s what we see.

We have a few cases in which the banks will not have the licence completed by the end of March, but these are banks with not very significant business with European counterpart and that were in any case planning to start or expand operations later. And they have prepared contingency planning anyway.

The most important thing I want to stress is that we are prepared for Brexit but it’s something unprecedented. We cannot rule out that there will be market disturbances -- or developments which had not been priced in by markets. In this situation what is most important is to have strong cooperation with the UK authorities.

We have from the very beginning had very good cooperation with the PRA and the Bank of England. The arrangements are now basically finalised. The EBA conducted the negotiations for the MOU between the EU authorities and the UK, and technical negotiations have been finalised.

I understand there has also been progress in the finalisation of the legislation on investment firms at the European level. There will be a clustering of different investment firms, in four buckets. And one of these buckets, the one containing firms which are more bank-like and systemically relevant, will come under the ECB’s supervision.”

2. ESMA/FCA: Share trading obligations under MiFID in the event of a no-deal Brexit 

ESMA's statement discusses the impact on the MiFIR trading obligation for shares in the event of a no-deal Brexit and without an equivalence decision for the UK by the EC. FCA's statement raises concerns that "firms may be limited to trading certain shares only in either the UK or the EU or in some cases be caught by overlapping obligations" and argues for further dialogue on this issue in order to minimise risks of disruption in the interests of orderly markets. The full statement can be accessed here.

“The statement from ESMA has made clear that the EU’s STO will apply to all shares traded on EU27 trading venues that are shares of firms incorporated in the EU (EU ISINs), and of companies incorporated in the UK (GB ISINs) where these companies’ shares are ‘liquid’ in the EU. This means EU banks, funds and asset managers will not be able to trade these GB or EU ISIN shares in the UK, even where the UK is the home listing of the British or EU company.

ESMA’s stated goal has been to provide as much certainty as possible and to mitigate potential adverse effects of a trading obligation in these circumstances.”

3. FCA: Speech by Nausicaa Delfas: Brexit and beyond

Text of this speech, given on 21 March 2019 follows, in which Nausicaa Delfas discusses FCA's Brexit preparations, its expectation of firms and preparations for exit, expectations of firms, the implications for consumers; residual risks; cross-border markets and FCA's future regulatory relationships. She states: "we recognise that the current equivalence regime operates as a patchwork, and does not provide for access in some key areas. As such, it remains important to establish further detail on the operation and maintenance of the equivalence regimes, and the institutional framework for supervisory and regulatory cooperation. As both the UK and EU are committed to open markets, there is also a strong basis for both sides to discuss broadening their respective equivalence frameworks and deepening supervisory cooperation to support this". The full speech can be accessed here.

The Temporary Permissions Regime will allow EU firms and funds that currently passport into the UK to continue operating in the UK if we leave the EU with no deal, and passporting stops. EU firms will temporarily be able to continue to operate within the scope of their current permissions and EU funds will be able to continue marketing into the UK. Firms will need to notify us that they wish to use the regime using our Connect system – a process we have designed to be as straightforward as possible. Notifications must be submitted by the end of 28 March 2019, just a week away.


However, at the moment, there is no similar system for UK firms who passport into the EU. A number of EU Member States have put arrangements in place similar but not identical to the TPR arrangements. These include jurisdictions that we know are important to UK firms: Germany, Spain, France, Ireland, Italy, Luxembourg and the Netherlands.


Of course, our future trading relationship with the EU is still to be negotiated and agreed. We are only nearing the end of the beginning. Our work to onshore the EU rulebook means that on day one, the UK will have the most equivalent framework to the EU of any country in the world. This provides a strong basis for the EU and UK to find each other equivalent across the full range of equivalence provisions.

4. HM Government/EC: Article 50 extension

HM Government and the European Commission have agreed to an extension of article 50. The text of the Agreement can be accessed here, the European Commission publication here and the UK publication here.


The regulators have announced that they have agreed a template MoU which sets out the expectations for supervisory cooperation and information-sharing arrangements between UK and EU/EEA national authorities. They intend to "move swiftly" to sign bilateral MoUs will allow uninterrupted information-sharing and supervisory cooperation in the event of a no-deal Brexit. The text of the template has not been published, although EBA notes that the template is similar to MoUs already agreed between the EU and other third country supervisory authorities. The UK statement can be accessed here and the EBA statement here.

Other publications from the RegZone Brexit news feed

EC: Delegated Regulations in relation to EMIR and MAR

The following have been published in the Official Journal: Commission Delegated Regulation (EU) 2019/460 of 30 January 2019 amending Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to the list of exempted entities and Commission Delegated Regulation (EU) 2019/461 of 30 January 2019 amending Delegated Regulation (EU) 2016/522 as regards the exemption of the Bank of England and the United Kingdom Debt Management Office from the scope of Regulation (EU) No 596/2014 of the European Parliament and of the Council. The first delegated regulation can be accessed here and the second one here.

EC: Delegated Regulations in relation to MiFIR and SFTR

The following have been published in the Official Journal: Commission Delegated Regulation (EU) 2019/462 of 30 January 2019 amending Delegated Regulation (EU) 2017/1799 as regards the exemption of the Bank of England from the pre- and post-trade transparency requirements in Regulation (EU) No 600/2014 of the European Parliament and of the Council and Commission Delegated Regulation (EU) 2019/463 of 30 January 2019 amending Regulation (EU) 2015/2365 of the European Parliament and of the Council with regard to the list of exempted entities. The first delegated regulation can be accessed here and the second one here.

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

An updated version of this HoC Library briefing, which provides a timeline of the major events leading up to Brexit. The briefing paper can be accessed here.

HoC: Brexit – parliamentary scrutiny of UK replacement treaties

This HoC Library briefing considers the Government's treaty continuity programme and HoL/HoC committee responses to it. The briefing paper can be accessed here.

HoL: Brexit debate under s13(6)(b) of the European Union (Withdrawal) Act 2018

This HoL library briefing contains a selection of material relevant for the Brexit scheduled for 25 March 2019. The briefing paper can be accessed here.

Department for Exiting the EU: International agreements if the UK leaves the EU without a deal

This guidance provides an update on the status of individual international agreements that the Government is delivering.  These agreements include the UK-Switzerland Agreement on Direct Insurance other than Life Insurance and Decision. The guidance can be accessed here.

PMO: Statement by Theresa May

Text of Theresa May's statement of 21 March 2019 following the Article 50 meeting can be accessed here.

EC: Article 50 meeting – 21 March 2019

The text of the EC's conclusions following its meeting of 21 March 2019 appears in the first link below.  Remarks by Donald Tusk are published in the second link. The text can be accessed here and Mr Tusk’s remarks here.

PRA: Temporary permission and variation: notification before exit day

PRA has published this Direction which is intended to clarify the position where a firm that has submitted a notification to enter the temporary permissions regime wants to withdraw its notification before exit day. The direction can be accessed here.

FCA: UK Benchmarks Register

As part of its Brexit preparations, FCA has announced plans to introduce a new UK Benchmarks Register to replace the ESMA Register for UK supervised users and for UK and third-country based benchmark administrators that want their benchmarks to be used in the UK. The publication can be accessed here.

EBA: Annual report on supervisory activities 2018/Statement by Andrea Enria

EBA has published its annual report along with a statement by Andrea Enria to the European Parliament on 21 March 2019 in which he also discusses Brexit preparedness, lessons learned from the Banking Union and AML. The annual report can be accessed here and the presentation accompanying the report can be accessed here.

HoL Library Briefing: Brexit – further recent developments

Ahead of a debate scheduled to take place on 25 March 2019, this briefing covers recent developments, including the UK’s request to the European Council for agreement to extend Article 50 to 30 June 2019. It was published before the European Council meeting on 21 March 2019. The briefing paper can be accessed here.

EC: Donald Tusk letter to European Council

The text of Donald Tusk's letter to the European Council ahead of their meetings on 21 and 22 March 2019 can be accessed here. Topics include: Brexit.

FCA: Statement by Theresa May

Text of Theresa May's statement of 20 March 2019 can be accessed here.

ESMA: Derivative contracts subject to the trading obligation under MiFIR

ESMA has updated its public register of those derivative contracts subject to the trading obligation under MiFIR. ESMA notes that several UK trading venues that offer trading in derivatives subject to the trading obligation have established, or are in the process of establishing, new trading venues in the EU27 and plan to offer the same product portfolio in the EU27 as they are currently offering in the UK. ESMA intends to update the register as soon as possible after those entities receive authorisation to operate from FCA. The publication can be accessed here.

ESMA: Data operational plan in the event of a no-deal Brexit

ESMA has published a statement in relation to the impact on its databases and IT systems in the event of a no-deal Brexit. The publication can be accessed here.

PMO: Letter from Theresa May to Donald Tusk

Text of Theresa May's letter of 20 March 2019 can be accessed here.

EC: Statement by Michel Barnier

Text of Michel Barnier's statement following the General Affairs Council meeting on 19 March 2019 can be accessed here.

FCA: Primary Market Bulletin 22

This edition of the Bulletin focuses on Brexit-related issues, including information for issuers and other stakeholders of key changes to the Listing Rules, the Disclosure Guidance and Transparency Rules and the Prospectus Rules that will be applicable in the event of a no-deal Brexit. The bulletin can be accessed here.

EC: Statement by Donald Tusk

Text of Donald Tusk's statement of 20 March 2019 can be accessed here.

CMA: Effects of a no deal EU exit on the functions of the CMA

Further to its January 2019 consultation, CMA has now published a feedback statement and updated guidance. The feedback guidance can be accessed here and the updated guidance here.

BIS: Speech by Joachim Wuermeling: What will pass, what will still be around, and what will come?

Text of this speech given on 19 March 2019 by a member of the Deutsche Bundesbank follows, in which Joachim Wuermeling discusses the prospects for Germany's banking sector and the implications of Brexit for the European financial sector. The full speech can be accessed here.

FCA: The operation of the MiFID transparency regime post-Brexit - technical communication

FCA's technical communication sits alongside the supervisory statement on how the regulator will operate the pre- and post-trade transparency regime in the event of a no-deal Brexit. The full statement can be accessed here.

HoC European Scrutiny Committee: 59th Report of Session 2017-19

Sections 5 and 6 the report consider negotiating mandates for EU-US trade talks (including with regard to Brexit implications) and UK contributions to the EU budget in 2019 in the event of a no-deal Brexit respectively. These matters are still under scrutiny by the Committee. The full report can be accessed here.

CMA: Guidance on the functions of the CMA after a ‘no deal’ exit from the EU

This guidance note sets out how a no-deal Brexit will affect CMA's powers and processes and it can be accessed here.

The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019/589

This SI has now been made and 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.

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Future Dates

* Estimated date

  • 1 December 2019

    End of four-year transitional period for RTS on risk-mitigation techniques for OTC derivatives contracts not cleared by a CCP under EMIR.

  • 9 December 2019

    PRA Consultation CP20/19 closes. 

  • 9 December 2019

    The changes set out in the appendices of PRA PS20/19, implementing changes to the prescribed responsibility for recovery and resolution under SM&CR,  will come into force.