The Brexit saga continues, but what does the FCA expect from you?
At the time of writing on the 17th of October, we sit almost two weeks from the scheduled Brexit day. While it now appears that EU and UK diplomats have made progress on a deal, subject to Parliamentary approval, an awful lot is still left to the wind in terms of what our relationship with the EU will look like post-Brexit. One such suggestion currently being discussed involves Northern Ireland remaining in the customs union, and the rest of the UK leaving on WTO terms. While former Chancellor Phillip Hammond described the plans as a “no deal in all but name”, this shows that the preparations for an unmanaged exit could still have significant impact for both firms located in the UK and in Europe. In the past week, the FCA has sought to provide some degree of clarity on how they expect firms to act in the event of a no-deal or in the event we enter WTO terms with no trade deal by which our financial services industry can be governed across the EEA.
Temporary Permissions Regime
As we know, if the UK leaves the EU without a deal, all rights stemming from passporting will end. In order to minimise the disruption this may cause firms, the UK government has created what it calls the Temporary Permissions Regime (TPR). This regime is for firms based in the EEA seeking to continue to offer their services into the UK; such firms who wish to continue operating under passporting will need to notify the FCA by 30 October that they wish to enter the TPR.
After Brexit day, firms who have made a notification to the FCA outlining their intention to make use of the TPR will be contacted and provided with a dedicated ‘landing slot’ on the FCA’s Connect system. From here, firms will be expected to submit their application for full UK authorisation, should they wish to continue to provide services in the UK. While the regulator is still consulting on the appropriate approach and the expectations of firms, it has been confirmed that firms will generally be expected to have a physical presence in the UK. If you require support and guidance in submitting an application for authorisation in the UK, please do get in touch.
For UK-based firms seeking to continue servicing clients in the EEA, similar regimes have been established on a state by state basis, affording differing rights and for various time periods. The FCA has provided this informative table from which you can find details on each state offering such arrangements. Firms will be expected to notify the relevant regulator prior to exit day. If you would like help in understanding the expectations or help in filing numerous notifications, please do not hesitate to get in contact.
MIFID & EMIR Reporting
MiFID transaction reporting forms is a key part of the FCA’s approach to market oversight. As such, the FCA has issued guidance for firms that may not be able to comply with their obligations at the point of the UK’s withdrawal or in the weeks and months that follow, should the industry be faced with major disruptions. As such, the FCA have affirmed that firms will be able to “back-report missing, incomplete or inaccurate transactions”. While the FCA has not issued ‘set in stone’ timeframes, they have declared that this should be completed as soon as possible after 31 October 2019.
Reporting obligations under the EMIR differs in several ways. EMIR reports deal with investments, derivatives and several other forms of transactions which require a heavier degree of cross border collaboration and overall regulatory oversight. As such, the FCA has outlined what they expect in what could be a handover period in the days following a no-deal Brexit.
Trade repositories (TRs) registered with the FCA should be in the position to receive reports from UK reporting counterparties and to share these with any relevant UK authorities. This should be done based upon the location in which the trade takes place as opposed to the jurisdiction in which the end client sits.
Further, FCA-registered TRs are also tasked with ensuring the migration of outstanding trades and historic EMIR data. This is designed to provide a reliable paper trail and grounds from which the regulator can adequately oversee the overall market. As such, information relating to any trades by UK reporting counterparties on 1st, 2nd, and 3rdNovember, must be embedded in their systems. The FCA has affirmed that this data must be available by 4th November.
Lastly, UK reporting counterparties should also ensure information relating to derivative transactions concluded, terminated or modified on 30 and 31 October are reported to an FCA-registered TR by 4th November. This is based on the disruption that may occur at the point of exit causing some trades to go unreported.
If you need help and guidance in this area, our Investments Team would be delighted to discuss your needs with you.