On 8 October 2018, HM Treasury published a proposal to provide the Bank of England (BoE), the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) (together the UK Regulators) with temporary transitional powers in the event that the UK leaves the EU without an implementation period.
Background
Preparing for all possible scenarios, including a ‘no-deal Brexit’, HM Treasury will use its powers under the European Union (Withdrawal) Act 2018 (EUWA) to ensure a fully functioning financial services regulatory regime for the UK, also known as ‘onshoring’. With a view to minimising disruption and maximising continuity, specific transitional measures have been introduced, including a Temporary Permissions Regime (TPR) for EEA firms and investment funds that are currently passporting into the UK as well as a Temporary Recognition Regime (TRR) for non-UK Central Counterparties (CCPs), allowing the relevant entities to continue their activities for a limited amount of time (a maximum of three years).
Temporary transitional power for UK Regulators
The general approach, where practicable, is for the same laws and rules currently in place in the UK to continue to apply after Brexit and for adjustments to be made only where necessary to reflect the new state of affairs. These changes may include changes to the UK Regulators’ own rules, onshored EU Regulations forming part of retained EU law and EU-derived domestic primary and secondary legislation. Complying with these transitional adjustments at short notice may be challenging for firms. HM Treasury therefore proposes, in addition to the above specific transitional measures, to provide the UK Regulators with a temporary power to grant transitional relief to all or certain categories of firms by waiving or modifying regulatory requirements. This transitional power would be available to the UK Regulators for a two-year period after Brexit.
The transitional powers would be used exclusively where the UK Regulators deem that it would be appropriate to grant a transitional relief for the purposes of helping a firm adjust to the post-exit regulatory framework in an orderly way, unless the relief would undermine the statutory objectives, such as financial stability, market integrity and consumer protection. There will also be no need to exercise the transitional power when a specific transitional provision is made in respect to a specific issue. Firms do not need to apply for the transitional relief in order to benefit from it, but instead the UK Regulators will publish relevant directions on their websites.
The UK Regulators could delay onshoring changes or grant transitional relief in respect of the following regulatory requirements:
- PRA and FCA rules made under FSMA;
- onshored Binding Technical Standards (BTS);
- onshored EU financial services regulations or delegated regulations; and
- relevant UK primary or secondary legislation.
The UK Regulators will not be able to use their transitional powers to modify:
- any provision setting out the ‘regulatory perimeter’ for UK financial services activity;
- FSMA threshold conditions; and
- any provision or requirement outside of the regulatory remit of the UK financial services regulators.
HM Treasury proposes to grant the transitional power to the UK Regulators by way of an affirmative procedure statutory instrument under the EUWA. The instrument will be laid before Parliament in due course.
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