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An update on Brexit and Financial Services - Protect 18 January 2019

This update discusses the implications of the UK/EU Withdrawal agreement on financial services, including the concept of equivalence, close regulatory cooperation, and the assessment of consumer protection. It also highlights the challenges of compliance and the temporary permissions regime for inbound firms and funds. Additional topics covered include PRA consultations, changes to rules and binding technical standards, and the Financial Services Bill.

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An update on Brexit and Financial Services - Protect 18 January 2019

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  1. An update on Brexit and Financial Services - Protect18 January 2019 Ed Simpson Head of Government Affairs

  2. UK/EU Withdrawal agreement & political declaration • A form of “equivalence” in financial services regulation, which would preserve “the mutual benefits of integrated markets and [protect] financial stability while preserving regulatory and decision-making autonomy”. Equivalence assessment to be made by June 2020. Either side could adopt or maintain any measures “where necessary for prudential reasons.” • Close and structured cooperation on regulatory and supervisory matters and information exchange • The UK would become a third country in the eyes of the EU, meaning that the European Commission would assess whether the UK provided an “adequate level of consumer protection”, including for data protection.

  3. European Union (Withdrawal) Act • Repatriates EU law. FLA paper for Whitehall • Off the back of this HMT gave regulators powers to offer transitional relief • As a result, regulators clear that firms not expected to prepare now to implement necessary changes • 800 SIs: • CCD / SECCI • IDD: transfers functions from EU to UK bodies & applies current scope of the delegated regulations to include all UK-based firms conducting insurance distribution in the UK as well as intermediaries and insurers operating under the Temporary Permissions Regime after the UK leaves the EU. • Onshoring of e-commerce Directive • FSMA to end passporting

  4. FCA CPs (10/10/18) • Amendments to Handbook and Binding Technical Standards : • HMT gives regulators powers to amend EU binding technical standards • Changes to be made to Handbooks including MIPRU, SYSC, TCF but not CONC • Consequential changes e.g. to names of EU regulators • What are compliance challenges? • Temporary Permissions Regime (TPR) for inbound firms and funds: • Planning in event of no deal or until end of transition (31/12/20?) • Limited period for EEA until full UK permission granted • Should TPR firms contribute to SFGB as per UK firms and pay Illegal Money Lending levy?

  5. PRA consultations (25/10/18) • Approach to changes to rules and Binding Technical Standards : • Changes to be made to rules include use of transitional powers, temporary continuation of passporting arrangements, moving ESAs powers, providing for UK to treat EU MS as 3rd countries (though exceptions permitted to protect consumers) & ensure capital/liquidity consolidation is at UK level • Bank & PRA propose to use transitional power to require firms to report & disclose regulatory data as they do now ditto in respect of treatment of EU27 exposures & assets • Firms would need to comply by exit day with contractual recognition of bail in & stay in rules & FSCS • Changes to PRA rules & relevant binding technical standards (linked to above): • No detailed changes to statements for now but will publish approach for reporting requirements established by the EU.

  6. 2ndFCA CP on Amendments to Handbook and Binding Technical Standards (28/11/18) • Follow-up to further SIs • Further Handbook amendments to reflect TPR e.g. FOS coverage? • Binding Technical Standards: repatriation of EU references e.g. IPID would need amending to stipulate EEA state in which insurer (or intermediary in some circumstances) is registered for cross-border transaction. No change needed for domestic transaction. • Approach to non-Handbook guidance and forms • Where no transitional arrangements, continuity provisions would apply e.g. pre-Brexit breach should be notified post-Brexit

  7. Other FCA activity • Brexit hub https://www.fca.org.uk/brexit • FCA published EU Withdrawal Impact Assessment (29/11/18) following request by Treasury Committee. It concludes that a ‘no deal’ scenario presents greater risk and uncertainty for the FCA & firms than draft agreement. FCA welcomes the 21 month transitional period not keen on long extension due to uncertainty over the UK’s ability to shape rules during this timeframe. • FCA speeches: • importance of contract continuity • MoUs will be put in place with EU27 • Data sharing will continue • FCA will seek to stay closely aligned with EU

  8. ‘No deal’ guidance • Retail banking, unlikely to be much change if UK-authorised subsidiary • Consumer rights – ADR would continue but ODR would stop • Data protection – close alignment but adequacy arrangements • VAT – maintain as close as possible to existing arrangements • Financial Services (Implementation of Legislation) Bill introduced (22/11/18) in the House of Lords to enable the Government “to implement and make changes to ‘in flight’ files [EU rules which have not yet been adopted or are under negotiation] of financial services legislation for two years” after Brexit, in a no-deal scenario.

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