On 31 January 2020, the United Kingdom (UK) left the European Union (EU) and entered into a transition period (otherwise known as an implementation period). During this period, whilst not an EU Member State, the vast majority of EU law and regulation continues to apply to the UK. During the transition period the UK and EU are negotiating the terms of their future relationship in a free trade agreement the first draft of which was publicly made available by the EU on 18 March 2020. As regards financial services, in the non-legally binding Political Declaration on the future EU/UK relationship the UK and the EU have agreed to endeavour to conclude their respective assessment of equivalence with respect to each other by the end of June 2020. Such frameworks allow the UK and the EU to declare a third country's regulatory and supervisory regime equivalent for relevant purposes including, for example, market access for investment services.
However, the transition period is set to end on 31 December 2020 unless both the EU and the UK agree an extension by 1 July 2020. Any extension can be for no more than two years. However, in the UK the European Union (Withdrawal Agreement) Act 2020 which was passed earlier this year contains a provision which prohibits a Minister of the Crown from agreeing to an extension of the transition period. With this in mind both the UK and a number of EU27 states have been making preparations for the scenario where the UK leaves the transition period this year without a free trade agreement and there are no positive equivalence assessments in place. In some instances these preparations have involved extending those measures that were put in place for a no-deal Brexit last year.
In the UK, the Bank of England (BoE) and the Prudential Regulation Authority (PRA) have issued a joint statement relating to HM Treasury's intention to 'shift' the temporary transitional power (TTP) so it will be available for up to two years after the end of the transition period. The BoE and the PRA intend to use the TTP after the transition period as previously communicated in relation to exit day (the day the UK left the EU). The BoE and the PRA intend to grant general transitional relief on a broad basis, with key exceptions as previously identified, for a period of 15 months after the end of the transition period (i.e. ending on 31 March 2022). Specific uses of the TTP, in particular those relating to some of the new requirements on firms entering the temporary permission regime, are expected to remain as previously published. The Financial Conduct Authority (FCA) has also updated its web page on the TTP. Like the BoE and the PRA, the FCA confirms that after the transition period it intends to apply the TTP on a broad basis and to the same areas previously communicated. The FCA intends to grant transitional relief from the end of the transition period until 31 March 2022. The FCA states that there are specific areas where it will not grant transitional relief. In these areas, it will continue to expect firms and other regulated entities to take reasonable steps to comply with the changes to their regulatory obligations by the end of the transition period. The detail of how and to what the TTP applies will be set out in the annexes to the TTP directions. The FCA will publish updated draft directions and annexes in due course, which will include details on the application of the TTP in relation to new EU legislative requirements that become applicable during the transition.
The following is a summary concerning the current position in some of the key EU27 jurisdictions.
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Originally Published by Norton Rose Fulbright
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