Brexit

UK Parliament

Taxonomy Regulation - House of Commons European Scrutiny Committee publishes letter to HM Treasury on UK alignment post-Brexit - 29 June 2020

The House of Commons European Scrutiny Committee has published a letter, dated 25 June 2020, from Sir William Cash (Chair of the European Scrutiny Committee) to John Glen MP (Economic Secretary to the Treasury) requesting clarification on the extent to which the UK intends to align with Regulation (EU) 2020/852, of 18 June 2020, on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation) beyond the Brexit transition period.

Letter from Sir William Cash (Chair of the European Scrutiny Committee) to John Glen MP (Economic Secretary to the Treasury) requesting clarification as regards UK alignment with the Taxonomy Regulation post-Brexit

HM Treasury

COVID-19 - HM Treasury publishes letter outlining its approach to proposed Regulation amending the CRR - 25 June 2020

HM Treasury has published a letter from John Glen MP (Economic Secretary to the Treasury) to Lord Kinnoull (Chair of the House of Lords European Union Committee) on the UK’s approach to proposed Regulation 2020/0066(COD), which contains a series of amendments to the Capital Requirements Regulation (575/2013/EU) (CRR) in an attempt to mitigate the economic impact of the COVID-19 pandemic and to encourage banks to provide credit to the real economy.

Mr Glen MP confirms that only those amendments to the CRR that will apply before the end of the Brexit transition period will become retained EU law. He observes that the amendments that will not automatically apply to the UK, as their application date falls outside the transition period, relate to:

• the leverage ratio, including measures offsetting the impact of excluding central bank exposures (CBEs) from the calculation of the leverage ratio and delaying the application of the new leverage ratio buffer requirement for global systemically important banks (G-SIBs) to 1 January 2023; and
• restrictions on distributions, including measures requiring the European Commission to report on whether regulators should be given additional powers to impose restrictions on distributions in exceptional circumstances.

The letter also highlights concerns that the UK government has regarding certain amendments to the CRR, including a temporary measure to apply favourable treatment of unrealised gains and losses for exposures for certain public sector entities and the treatment of certain software assets. These amendments will apply before the end of the transition period.

The European Commission, European Parliament and the Council of the European Union have all adopted the proposed Regulation at first reading. The proposed Regulation will enter into force on the day following its publication in the Official Journal of the European Union, which is expected to be no later than the end of June 2020.

Letter from John Glen MP (Economic Secretary to the Treasury) to Lord Kinnoull (Chair of the House of Lords European Union Committee) on proposed Regulation amending the CRR in light of COVID-19

UK-Swiss financial services relationship - HM Treasury publishes statement on mutual recognition - 30 July 2020

HM Treasury has published a statement, made jointly with the Swiss Federal Department of Finance, on deepening the UK and Switzerland’s cooperation in financial services. It confirms that the UK and Switzerland intend to conclude a legally binding international agreement to establish mutual recognition of each jurisdiction’s regulatory and supervisory regimes in the fields of insurance, banking, asset management and capital markets, including market infrastructure.

Among other things, the parties intend for the agreement to:

• establish outcomes-based mutual recognition, providing rights for the provision of relevant financial services from one jurisdiction into the other, and reducing regulatory frictions for cross-border activity;
• establish structures and appropriate safeguards to underpin these rights, including provisions for regulatory and supervisory cooperation; and
• create a clear, transparent and managed process in the event that recognition is withdrawn in the future or re-established after a withdrawal.

The UK and Switzerland also intend to improve access for the cross-border provision of financial services for wholesale and sophisticated clients on the basis of “recognition, reciprocity and enhanced regulatory and supervisory co-operation”. Technical work on the future UK-Swiss financial services relationship is currently underway and both parties intend to take stock of progress at a meeting before the end of 2020.

HM Treasury has also published a speech delivered by Rishi Sunak MP (Chancellor of the Exchequer) on the future agreement. Mr Sunak MP states that the UK has completed its equivalence assessment of Swiss stock markets, finding them to be equivalent. HM Treasury states that it will lay a statutory instrument on the equivalence of the Swiss stock markets in Parliament at the earliest opportunity once its equivalence powers come into force at the end of the Brexit transition period.

HM Treasury statement on the future UK-Swiss financial services relationship

Speech by Rishi Sunak MP (Chancellor of the Exchequer) on the future UK-Swiss financial services relationship

Press release

Bank of England

EEA CSDs - Bank of England publishes information on recognition applications - 26 June 2020

The Bank of England has updated its webpage on the effect of the UK’s withdrawal from the EU on the supervision of financial market infrastructures (FMIs) with information on recognition applications for EEA central securities depositories (CSDs). This follows the publication of the draft Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020. The Regulations provide a mechanism for EEA firms to apply for recognition from the FCA or the Bank of England before the end of the Brexit transition period, once HM Treasury has made an equivalence determination relating to the legislative framework under which they will operate.

The updated information states that:

• if HM Treasury makes a relevant equivalence decision, the Bank will contact EEA CSDs, as appropriate, and notify them of the actions they need to take, including the manner in which a recognition application may be made and the information that must accompany it. It notes that, in any event, EEA CSDs must submit a formal recognition application within six months of the end of the transition period; and
• the procedure for non-EEA CSDs remains unchanged. HM Treasury will not make any equivalence decisions relevant to these CSDs until after the end of the transition period.

Updated Bank of England webpage on the effect of the UK’s withdrawal from the EU on the supervision of FMIs

Financial Conduct Authority

UK SFTR - FCA updates trade repository registration arrangements - 26 June 2020

The FCA has updated its webpage on trade repositories (TRs) to publish updated instructions on TR registration arrangements under the retained EU law version of the Securities Financing Transactions Regulation (EU) 2015/2365 (UK SFTR).

The webpage notes HM Treasury’s intention to bring forward legislation to enable TRs to register with the FCA or apply in advance to operate in the UK immediately following the end of the Brexit transition period and contains links to draft Registration and Conversion forms, on which we reported in the previous edition of this Bulletin.

Among other things, the FCA states that:

• any UK TR that is a UK legal entity and not part of the same group as a TR with an European Securities and Markets Authority (ESMA) registration and wishes to submit an advanced application for a new registration should contact the FCA to ensure it completes the right form; and
• for firms not wishing to seek registration with immediate effect from the end of the transition period, applications made after the end of the transition period to register as a new TR will be assessed in accordance with the usual procedures in the UK SFTR and the Transparency of Securities Financing Transactions and of Reuse (Amendment) (EU Exit) Regulations 2019 (SI 2019/542) (SFTR EU Exit Regulations).

Updated FCA webpage on TRs

Temporary permissions regime - FCA to re-open notifications window - 1 July 2020

The FCA has updated its webpage on the temporary permissions regime (TPR) for inbound passporting EEA firms and funds to confirm that it will re-open the notifications window on 30 September 2020. This will allow firms and fund managers that have not yet made a notification to do so before the end of the Brexit transition period. The FCA also notes that there will be an opportunity for fund managers to update their previously submitted notifications under the temporary marketing permission regime (TMPR), if necessary. The notification windows for EEA firms and fund managers under the TPR and the TMPR last closed at the end of 30 January 2020.

The FCA has also published a speech delivered by Nausicaa Delfas (Executive Director of International at the FCA) in which she confirms that over 1,000 firms and over 600 fund managers have already made notifications under the TPR. She also states that the FCA plans to consult later in 2020 on the approach it will take when assessing applications from overseas firms.

The FCA intends to communicate further on this in September 2020.

FCA webpage on the temporary permissions regime

Speech by Nausicaa Delfas (Executive Director of International at the FCA) on the FCA’s plans to consult on its approach to applications from overseas firms

New Legislation

Draft Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020 - laid before Parliament - June 2020

The draft Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020, made by HM Treasury in exercise of the powers conferred by section 8(1) of, and paragraph 1 of Schedule 4 and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018, have been laid before Parliament, together with explanatory information.

The draft Regulations seek to ensure a coherent and functioning financial services equivalence framework in the UK during and at the end of the transition period, adding to the measures made in the draft Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020, which were published in May 2020. Among other things, the draft Regulations:

• contain minor amendments to fix deficiencies identified in existing financial services EU Exit instruments, including: (i) the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 (SI 2018/1320); (ii) the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (SI 2018/1403); (iii) the Credit Rating Agencies (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/266); and (iv) the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541) (Equivalence Determinations Regulations 2019);
• provide for the FCA and the Bank of England to establish, before the end of the Brexit transition period, "cooperation arrangements" with EEA regulators where HM Treasury makes an equivalence direction in relation to an EEA state under regulation 2 of the Equivalence Determinations Regulations 2019; and
• allow UK regulators to accept applications from EEA financial services providers for "regulatory decisions" in respect of issues detailed in Schedule 3 before the end of the Brexit transition period.

The Regulations will come into force on the day after the day on which they are made.

Draft Equivalence Determinations for Financial Services (Amendment etc.) (EU Exit) Regulations 2020

Explanatory memorandum

The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020 (SI 2020/646)

The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020 (SI 2020/646) were made on 24 June 2020, in exercise of the powers conferred by section 8(1) of, and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018.

The Regulations aim to ensure that the framework established under the European Market Infrastructure Regulation (648/2012/EU) (EMIR), as amended by Regulation (EU) 2019/2099 amending EMIR as regards the procedures and authorities involved for the authorisation of central counterparties (CCPs) and requirements for the recognition of third-country CCPs (EMIR 2.2), continues to operate effectively once the UK leaves the EU at the end of the Brexit transition period. Most notably, the Regulations expand the UK’s existing CCP supervisory framework to cover third-country CCPs, ensuring that the Bank of England can undertake the necessary supervisory responsibilities required under the EMIR framework.

The Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2020 (SI 2020/646)

Explanatory memorandum

The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020 (SI 2020/628)

The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020 (SI 2020/628) were made on 29 June 2020, in exercise of the powers conferred by section 8(1) of, and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018. The Regulations seek to ensure a coherent and functioning financial services regulatory regime in the UK at the end of the Brexit transition period by:

• revoking several pieces of retained EU law and UK domestic law which would not be appropriate to keep on the statute books after the end of the transition period as they deal with cross-border activity within the EU and the functioning of EU institutions; and
• making a number of amendments to address deficiencies in UK domestic law and retained EU law arising from the UK’s withdrawal from the EU.

Regulations 2, 3, 5, 6, 11 and 16 come into force on 30 June 2020. Regulations 1 to 10, 12 to 14 and 17 come into force immediately before 31 December 2020, with Regulations 4, 15 and Part 3 coming into force on 1 January 2021.

The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2020 (SI 2020/628)

Explanatory memorandum

Draft Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc.) (EU Exit) Regulations 2020 - laid before Parliament - 30 June 2020

The draft Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc.) (EU Exit) Regulations 2020, made in exercise of the powers conferred by section 8(1) of, and paragraph 21 of Schedule 7 to, the European Union (Withdrawal) Act 2018, have been laid before Parliament, together with explanatory information.

The regulations amend four pieces of EU-derived legislation which extend the time limit for bringing court proceedings where a consumer is engaged in non-binding alternative dispute resolution (ADR). The legislation to be amended includes the Prescription and Limitation (Scotland) Act 1973, the Limitation Act 1980, the Foreign Limitation Periods Act 1984 and the Limitation (Northern Ireland) Order 1989.

Among other things, the amendments remove references to the ADR Directive (2013/11/EU) and ensure that the applicable statutory time limit for launching court proceedings will only be extended in cases where the consumer is resident in the UK and uses the services of an ADR provider authorised within the UK.

Draft Alternative Dispute Resolution for Consumer Disputes (Extension of Time Limits for Legal Proceedings) (Amendment etc.) (EU Exit) Regulations 2020

Explanatory memorandum

European Commission

Brexit negotiations - speech by Michel Barnier, Head of Task Force for Relations with the UK at the European Commission - 30 June 2020

Michel Barnier (Head of Task Force for Relations with the UK at the European Commission) has delivered a speech at the Eurofi General Assembly on the current state of play of the Brexit negotiations, its impact on the EU financial services sector and the EU’s ongoing process for the assessment of equivalence determinations relating to the UK. Mr Barnier explains that equivalence regimes are unilateral tools that do not form part of the ongoing negotiations. He further notes that the EU is proposing to include a chapter on financial services in the future agreement, consistent with other free trade agreements.

Among other things, Mr Barnier states that:

• the UK’s proposals to create a legally enforceable regulatory co-operation framework on financial services are “unacceptable”, as they would “severely limit the EU’s regulatory and decision-taking autonomy”;
• the EU would like to establish a voluntary framework for dialogue among regulators and supervisors that would allow for intensive exchanges on regulatory and prudential issues;
• in light of the Political Declaration, which committed the EU and UK to best endeavours to finalise their respective assessments by the end of June 2020, the European Commission has sent questionnaires to the UK, covering 28 areas where equivalence assessments are possible, of which the UK has only replied to four; and
• equivalence assessments must be forward-looking given the UK’s publicly stated intention to diverge from EU rules after 1 January 2021. Mr Barnier emphasises that the EU will only grant equivalence in those areas where it is clearly in the interest of the EU, its financial stability and of its investors and consumers.

Speech by Michel Barnier (Head of Task Force for Relations with the UK at the European Commission) on the assessment of equivalence determinations relating to the UK