Following the passage of the European Withdrawal Act on 26 June 2018, HM Treasury and the FCA have each published statements setting out their approach to implementing financial services legislation in preparation for the UK's withdrawal from the EU.
Under the Withdrawal Act, EU law that currently applies directly in the UK will be converted into UK domestic law. The EU and UK have agreed to the terms of an implementation period to smooth the transition towards a separate UK legislative and regulatory regime. During any such implementation period, the UK will remain part of the EU's single market in financial services, and EU legislation (including any new EU law that comes into effect) will continue to apply.
However, with negotiations on a wider withdrawal agreement yet to be concluded between the EU and the UK, both the FCA and HM Treasury have noted in their statements that they continue to prepare for the possibility that the UK leaves the EU on 29 March 2019 without a withdrawal agreement and, therefore, without an implementation period. This is interesting in light of the FCA's view that regulated firms may legitimately prepare for Brexit in reliance on the proposed transitional period.
To prepare the UK's regulatory regime to operate when EU legislation ceases to apply (particularly in such a 'no deal' scenario), HM Treasury intends to use its powers under the Withdrawal Act to implement Statutory Instruments, aimed at amending legislation to "onshore" EU laws that have been incorporated into UK domestic law, correcting any deficiencies (such as references to EU authorities) so that it can operate effectively as UK law.
The FCA states that it (along with the PRA, Bank of England and Payment Systems Regulator) has been tasked by HM Treasury with implementing Statutory Instruments to amend any EU technical standards, the detailed rules that sit beneath primary EU legislation, once they become part of UK law. The FCA will also be amending its handbook to ensure it reflects any changes made by Statutory Instruments to financial services legislation.
Subject to HM Treasury's timeframe, the FCA has stated its intention to consult on the changes it makes this autumn. Firms would be well-advised to review the contents of that consultation paper in detail, once it is released. The FCA also intends to consult on the rules of a temporary permissions regime to enable EEA firms to continue operating in the UK for a time-limited period after the UK has left the EU, in the event that no deal is reached with the EU.
Both statements make clear that intended use of Statutory Instruments is to correct deficiencies in on-shored EU legislation, and not to make broader policy changes. Nonetheless, the FCA's statement makes clear that the task of preparing the UK's regulatory regime to stand apart from EU legislation will place a substantial burden upon its resources. While it is continuing to work towards major initiatives such as its review of High-Cost Credit and the implementation of the Senior Managers and Certification Regime, other initiatives, such as its work on illiquid assets, will be delayed.
Further to the announcement (link is external) from HM Treasury (the Treasury) on its approach to amending financial services legislation under the European Union (Withdrawal) Act, this statement provides stakeholders with an update on how we are preparing for the UK leaving the European Union (EU).