European Union: UK Government Issues Brexit 'No-Deal' Guidance For Financial Services

On August 23, 2018, HM Treasury published a technical notice entitled "Banking, insurance and other financial services if there's no Brexit deal," to provide guidance about the impact of the U.K. leaving the EU without a ratified withdrawal agreement in place. The guidance is relevant to financial services firms, funds and financial market infrastructures and to their customers. The technical notice is one of the first 25 of a series of U.K. government technical notices setting out information that will enable businesses and citizens to make informed plans and preparations in the event of the U.K. exiting the EU on March 29, 2019 without a deal. These technical notices include a notice on the government's overarching approach to preparing for a "no deal" scenario.

On March 29, 2019, the European Union (Withdrawal) Act 2018 will adopt EU law into the U.K. statute book and also empowers U.K. government ministers to amend EU laws so as to ensure a fully functioning regulatory framework for financial services on exit day. In a no deal scenario, the U.K. will fall outside the EU's regulatory framework for financial services and, in particular, it will not be possible for U.K. firms or EEA firms to provide services or activities in the EEA or U.K. respectively on the basis of the current single market passports. U.K. firms' regulatory position in relation to the EU would be determined by the relevant member state rules and any applicable EU rules that apply to third countries (countries outside of the EEA) at that time.

The technical notice explains that the U.K. will also treat EEA firms as third-country firms by default, but that the U.K. will minimize disruption for firms passporting into the U.K. prior to exit day and their customers, by introducing a temporary permissions regime for firms and a temporary recognition regime for non-U.K. CCPs. The government also intends to introduce similar temporary regimes for EEA electronic money and payment institutions, registered account information service providers and EEA funds that are marketed into the U.K. Planned U.K. legislation will also establish transitional arrangements for central securities depositories, credit rating agencies, trade repositories, data reporting service providers, systems currently designated under the Settlement Finality Directive and depositaries for authorized funds.

The technical notice clarifies a number of areas:

  • There will be no, or no significant, implications from a "no deal" scenario for U.K.-based customers of U.K.- based providers (including U.K. subsidiaries of EEA firms). However, there could be some costs increases due to loss of direct access to central payments infrastructure—such as TARGET2 and the Single Euro Payments Area (SEPA)—and from the fact that cross-border card payments between the U.K. and EU will no longer be covered by EU legislation banning surcharges.
  • Disruption will be minimized for U.K.-based customers of U.K.-based providers due to the U.K. temporary permissions regimes.
  • The position of EEA customers (including U.K. citizens living abroad) of U.K. firms operating in the EEA is less clear, as a matter in respect of which the U.K. cannot take unilateral action to fully remediate risks of access or other issues. Absent action from the EU or its member states to minimize disruption (perhaps by introducing measures similar to the U.K.'s temporary regimes) or reliance by firms on applicable third country regimes, the loss of the financial services passport could mean, for example, that the access of EEA clients to U.K.-based financial institutions will be constrained. The government proposes to take unilateral action, if necessary, to resolve this issue on the U.K. side, and will work with the EU to identify and fully address these risks.
  • The U.K. authorities are ready to agree cooperation arrangements with their EU counterparts as soon as is possible, to bring the U.K. into line with other third countries. Once these arrangements are in place, for example, asset management firms should be able to continue to use the delegation model, whereby EU legislation permits fund managers to delegate portfolio management services to a third party in another country, including countries outside the EU.
  • U.K.-based clearing members (and their clients) using U.K. CCPs will not need to take any action as a result of Brexit.
  • The temporary regime for non-U.K. CCPs will enable non-U.K. CCPs to continue to provide services to the U.K. for a period of up to three years. This will minimize the impact of Brexit for U.K.-based users of non-U.K. CCPs (including EEA CCPs).
  • The government will bring forward legislation to counteract the fact that the U.K. will no longer be a part of the EU Settlement Finality Directive framework, which allows designated Financial Market Infrastructures to benefit from protections from insolvency actions. This proposed U.K. legislation will allow designations of non-U.K. FMIs, give powers to the Bank of England to designate these FMIs and provide for a temporary regime that would enable certain non-U.K. FMIs to continue to benefit from U.K. protections currently provided for by the EU Settlement Finality Directive. The EU has not proposed similar measures to designate U.K. FMIs, with the result that EU settlement finality protection for U.K. FMIs may fall away.
  • U.K. trading venues will cease to be EU trading venues on Brexit. Unless there is action from the EU, the impact of this could be reduced market liquidity, in that some EEA firms may not be able to be members of U.K. venues and U.K. venues will also not be eligible venues for EEA firms to execute certain equity and derivatives trades.
  • In addition, U.K.-based market participants may no longer be able to undertake certain equity and derivatives trades on EEA trading venues and would have to use alternative U.K. and international venues instead. EU market operators wishing to continue to undertake regulated activities in the U.K. will need to seek recognition as a Recognised Overseas Investment Exchange. Notably, there does not appear to be any proposed temporary permissions regime for EU exchanges, meaning that these will need to become Recognised Overseas Investment Exchanges in the U.K. from the point of Brexit in order to maintain meaningful U.K. access.
  • The Financial Conduct Authority will be empowered by new legislation to authorize and regulate both U.K. and non-U.K. Credit Rating Agencies and Trade Repositories after Brexit. The FCA will also be empowered to allow U.K. CRAs and TRs to convert their existing EU authorization into a U.K. authorization. However, if no action is taken by the EU, EEA firms will no longer be able to access these U.K. firms and, unless the EU acts by endorsing or finding U.K. CRAs equivalent, the ratings of U.K. CRAs will no longer be able to be used in the EU for regulatory purposes after Brexit.
  • The government proposes to bring forward legislation in September 2018 to introduce a temporary regime to minimize the impact on U.K. customers of both EU CRAs and TRs.
  • Transfer of personal data between the U.K. and the EU will be the subject of a separate technical notice to be published by HM Treasury.

The technical note is available to view at: https://www.gov.uk/government/publications/banking-insurance-and-other-financial-services-if-theres-no-brexit-deal/banking-insurance-and-other-financial-services-if-theres-no-brexit-deal#purpose.

Details of the European Union (Withdrawal) Act 2018 can be viewed at: https://finreg.shearman.com/uk-brexit-legislation-receives-royal-assent.

Our client note on recent Brexit developments can be viewed at: https://www.shearman.com/perspectives/2018/08/brexit-equivalence-model.

The technical notice on the government's overarching approach to "no deal" preparations can be viewed at: https://www.gov.uk/government/publications/uk-governments-preparations-for-a-no-deal-scenario/uk-governments-preparations-for-a-no-deal-scenario#timetable-and-conclusion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Shearman & Sterling LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Shearman & Sterling LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions