Brexit news for financial services firms - from 26 April 2019 to 9 May 2019

10 May 2019 Download PDF

1. HoC European Scrutiny Committee: 64th Report of  Session 2017-19

Section 7 of the report discusses recent developments with regard to the powers of the EU’s supervisory authorities. Although the matter is no longer under scrutiny by the Committee, it has referred the matter to the attention of TSC. The full report can be accessed here.

“In substance, the amendments to the basic Regulations establishing the ESAs—and the consequential amendments to the EU’s sectoral financial services legislation—will make the following changes:

  •  in line with the Member States’ position of February 2019, the new legislation creates a larger role for the Supervisory Authorities in monitoring continued compliance with the conditions for equivalence by ‘third countries’ with EU financial services legislation, including the impact the provision of financial services from outside the EU has on the “functioning of the internal market”. The ESAs will issue a confidential report on their assessment to the EU institutions each year, on the basis of which the Commission decides whether to maintain, modify or withdraw an existing equivalence decision;
  • to foster supervisory convergence (i.e. ensuring that different Member States apply EU financial services legislation in the same way, to avoid the possibility of regulatory arbitrage by both EU and non-EU firms), coordination groups will be established within each ESA. These are informal platforms for competent authorities to exchange information and experiences, and replace the Commission’s original proposal to give the Authorities veto powers over decisions by national regulators to allow firms in their jurisdiction to outsource or delegate activities to ‘third country’ parties (like British firms after the UK’s exit from the Single Market);
  • the ESAs will also be given a new supervisory tool called ‘No Action Letters’, enabling them to recommend forbearance to Member States’ national regulators and the European Commission with respect to the application of EU law “when market confidence, consumer protection, the orderly functioning of financial markets or the stability of the Union is at risk”. This does not give them the power to reform or suspend EU legislation unilaterally, but limits them to issuing nonbinding recommendations (including suggestions for amendments to EU law, for consideration by the European Commission);
  • the direct supervisory responsibilities of the European Securities & Markets Authority (ESMA) will be expanded to cover certain financial benchmarks, including those administered by ‘third country’ firms but used within the EU. The Minister notes that this “will create a simpler process for third country recognition applications by removing the complex member state of reference rules”, and that the new Regulation—if it applied directly to the UK before it leaves the Single Market, see paragraphs 13 and 14 below—would leave the crucial LIBOR benchmark under the jurisdiction of the Financial Conduct Authority in London; and
  • ESMA will also become the pan-EU supervisor for data reporting service providers (DRSPs)—which provide market transparency in the investment sector—which are “deemed to be of significance to the internal market”. The Minister says this is an acceptable compromise with the European Parliament because “national competent authorities will still have immediate access to the data required for market monitoring”. A proposal by the European Parliament to make ESMA the supervisor for non-EU Central Security Depositories (part of the post-trade infrastructure for securities transactions) was rejected, and replaced by a requirement for a review into this matter every three years Similarly, the Commission’s original suggestion to make ESMA the responsible regulator for certain investor prospectuses and investment funds was also discarded

In addition to watering down the Commission proposals for new substantive powers for the ESAs, the Member States also succeeded in almost completely blocking any significant reforms of the way the Authorities are managed and run. Power to take key decisions will remain in the hands of the Boards of Supervisors, which are dominated by the EU’s national financial regulators. There will be no ‘Executive Boards’ that are run independently, so that ‘breach of Union law’ procedures—such as the putative one against the Danish and Estonian regulators over Danske Bank—are likely to remain elusive since it effectively requires national supervisors to take action against themselves. However, the European Parliament will gain the power to block the appointment of the Chairperson of each Supervisory Authority (a decision which is made by the Member States).


Any new powers the ESAs gain in the coming years—for example the transfer of supervisory responsibility for benchmarks or and DRSPs from Member States to ESMA—would extend to the UK financial services industry if they become applicable while the UK is still bound by EU law, either as a Member State or by virtue of the post-Brexit transitional period. Similarly, the ESA’s new ability to issue ‘No Action Letters’—in addition to existing powers such as the ‘breach of Union law’ procedure— would apply to the UK’s regulators, even though they would not be represented in Board meetings where decisions to that effect are discussed or taken. While the draft Withdrawal Agreement allows the UK to be invited to meetings of EU bodies where acts “to be addressed […] to the United Kingdom” are discussed—which would presumably include decisions by the ESAs addressed directly to British regulators or financial firms—such invitations are extended at the EU’s sole discretion. The extent to which this lack of representation will see the ESAs act—both in general terms and vis-à-vis the UK specifically—in a manner which the Bank and FCA would formerly have prevented remains to be seen.


First, Government has accepted that any preferential access for UK financial services firms to the EU market will be based on the ‘equivalence’ mechanism. As discussed, this is a sectoral legal framework that would allow the European Commission to declare the UK’s regulatory approach in a specific financial industries as equivalent to the EU’s, which provides enhanced market access rights or other benefits that make engaging with EU-based customers easier. As the ESFS review will give the ESAs a greater role in monitoring to what extent a non-EU country has maintained adequate regulation of specific financial sectors after ‘equivalence’ has been granted, both the Treasury and the industry itself have an interest in how the Authorities will fulfil those new responsibilities. We note in this regard that the Government is pushing for more “transparency” in the process of granting, modifying or withdrawal of equivalence decisions by the EU, but the annual report produced by the ESAs will be confidential and shared only with the Commission, Parliament and Council.”

2. FCA: Andrew Bailey interview with the FT

The following comments have been made by Andrew Bailey in an interview with the FT. They were published in the FT article “Regulatory urges post-Brexit deal for City of London” (8 May 2019)

“An agreement on a customs union would tie down the goods model, but it wouldn’t tie down the services model,”

“We’ve got to settle these issues well before negotiation [with the EU on the future relationship] . . . we have to have these issues on the table and in people’s minds.”

“I don’t think a codified system of detailed rulemaking . . . is an obviously good way of developing those markets,”

Andrew Bailey also mentioned that he was opposed to becoming an EU rule taker, in particular, because he fears that the EU will take a less liberal approach to regulation once the UK’s voice is no longer represented in the discussions.

Other publications from the RegZone Brexit news feed

ESMA: Board of supervisors meeting

ESMA has now published the minutes of its meeting held on 26 March 2019. Topics include Brexit.

Courts and Tribunals Judiciary: Speech by Sir Nicholas Hamblen: Litigating financial disputes in London and the financial list

Text of this speech, given on 7 May 2019, follows in which Sir Nicholas Hamblen discusses potential impact of Brexit on the financial list. The full speech can be accessed here.

Courts and Tribunals Judiciary: Speech by Sir Geoffrey Vos: The effect of Brexit on financial services disputes in London

Text of this speech, given on 7 May 2019, follows in which Sir Geoffrey Vos discusses the position of English law and UK jurisdiction post-Brexit and developments in fintech affecting international dispute resolution. The fuylls peech can be accessed here.

FCA: Board minutes

FCA has now published Board minutes from its 28 March 2019 board meeting. Topics include: Brexit; FCA's business plan; supervision of certain cryptoasset businesses for AML purposes; issues concerning the regulatory perimeter and the regulation of mini-bonds; duty of care and rules to permanently prohibit the sale of binary options to retail clients. The minutes can be accessed here.

FCA: Speech by Christopher Woolard: Financial conduct regulation in a restless world

Text of this speech, given on 8 May 2019 follows. Topics include: FCA's Business Plan; the future of regulation; the recent intergenerational discussion paper; Brexit and innovation/data/data ethics. The full speech can be accessed here.

HoC: CETA: the EU-Canada free trade agreement

This HoC Library briefing note sets out information on CETA, a free trade agreement between the EU and Canada, including discussion of the impact of Brexit. The briefing paper can be accessed here.

BoE: Speech by Sir Jon Cunliffe: Financial stability post Brexit: risks from global debt

Text of this speech, given on 7 May 2019 follows, in which Sir Jon Cunliffe discusses aspects of financial stability risks post-Brexit, including with regard to financial regulation. The full speech can be accessed here.

HMT: Draft Brexit SI - The Financial Services (Miscellaneous) (Amendment) (EU Exit) (No. 2) Regulations 2019

This draft SI proposed amendment to various existing Brexit SIs. The SI can be accessed here and the explanatory notes here.

HoC: European Union Committee publishes its tenth international agreements report

This reports considers two Brexit-related international agreements: one between the UK and the CARIFORUM States; and one between the UK and the Republic of Indonesia on Forest Law Enforcement, Governance and Trade in Timber Products into the United Kingdom of Great Britain and Northern Ireland. Both agreements are continuity agreements which seek to replicate existing agreements the UK is currently party to through its membership of the EU. The report can be accessed here.

FCA: Handbook Notice 65

The FCA has published Handbook Notice 65 which sets out amendments to the FCA Handbook, binding technical standards and other material made by the Financial Conduct Authority (FCA) Board under its legislative and other statutory powers on 28 March and 9 April 2019. The Handbook notice can be accessed here.

ESMA updates publication schedule for transparency calculations in May and June 2019

The European Securities and Markets Authority (ESMA) considers, that following the extension of Article 50(3) in relation to the United Kingdom’s withdrawal from the European Union, it is necessary to provide clarity to stakeholders that transparency calculations due in May and June as well as in the following months will now be published. The full publication can be accessed here.

HoC Library: Brexit questions in national and EU courts

It has been predicted that Brexit issues will give rise to many legal actions in UK and other Member States' courts, and the Court of Justice of the EU. While there have not yet been a great many, several cases have been brought by UK citizens living in other EU Member States, while other cases have been interesting for their implications for the UK's future relations with the EU. This paper looks at issues that have been the subject of legal action in UK and EU courts. The briefing paper can be accessed here.

HoC Library: Briefing 2018 CJEU Judgments in Summary

This briefing paper summarises a selection of Court of Justice of the EU (CJEU) judgments from 2018. The briefing paper can be accessed here.

PMO: Statement by PM Theresa May and Taoiseach Leo Varadkar

Text of statement from PM Theresa May from 26 April 2019. The full statement can be accessed here.

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