European Union: UK Post-Brexit EU Financial Services Legislation

Shearman & Sterling is today making available consolidated versions of EU legislation showing the proposed U.K. on-shored versions. The batch of legislation that will be available at launch today comprises consolidated post-Brexit U.K. versions of:

  • The Bank Recovery and Resolution Directive/Banking Act 2009.
  • The Capital Requirements Regulation.
  • The European Markets Infrastructure Regulation.
  • The Markets in Financial Instruments Regulation.

These are found within our Brexit Resource Centerwebsite.

We will be adding new consolidated legislation to this maintained resource in due course.

Background

The U.K. government has been publishing statutory instruments (U.K. secondary legislation) onshoring and amending EU regulations after Brexit. This is being done under the European Union (Withdrawal) Act 2018, so as to ensure a workable U.K. statute book after Brexit. This "onshoring" legislation is not intended to introduce policy changes unrelated to technically implementing the U.K.’s EU withdrawal. The purpose is to correct a limited range of deficiencies (as defined in the EU (Withdrawal) Act 2018) in the directly applicable EU Regulations that will be retained on exit and in the existing U.K. law that implements the requirements of EU Directives. However, necessarily, there are various decision points that U.K. legislators have needed to take in relation to third country issues and relationships.

The onshoring legislation has been designed to adapt to all potential outcomes to the negotiations for the U.K.'s withdrawal. The statutory instruments have been specifically drafted so that they come into operation either on exit day if there is a “no deal” scenario where the U.K. leaves the EU without a ratified withdrawal agreement, or at the end of any negotiated transitional, or “implementation,” period agreed as part of the U.K.-EU Withdrawal Agreement. As at the time of writing, the U.K. and EU's negotiators have agreed in principle the technical terms of the Withdrawal Agreement1. However, approval of those terms must be obtained from the U.K. Parliament as well as the EU27, which may take some weeks and is of uncertain outcome. The onshoring legislation has largely been designed for a "no deal" Brexit. However, once any deal is finalized, it is likely to take largely the same form.

Changes to Financial Services Law and Technical Standards for Brexit

The European Union (Withdrawal) Act 2018 sets out an enhanced scrutiny procedure. Secondary legislation used to amend certain retained EU law will be subject to the affirmative scrutiny procedure which requires the approval of both Houses of Parliament before it is made. Some of the onshoring legislation has been published in draft form, while other parts have been laid before Parliament already. In the financial services sector, around 70 separate statutory instruments are expected eventually to be made to implement Brexit.

In addition, HM Treasury has delegated responsibility to the Financial Conduct Authority, the Prudential Regulation Authority, the Bank of England and the Payment Systems Regulator for correcting deficiencies in the Binding Technical Standards that supplement primary EU legislation and for maintaining them after Brexit. Amendments to such technical standards for U.K. purposes will therefore take place via regulatory rulebook changes and not by statutory instrument. In some cases a single regulator has been designated as the responsible authority and in other cases more than one regulator has responsibility. The regulators have issued their initial consultations in line with the publication of statutory instruments [2] . A number of draft “EU Exit” instruments have been published as part of these consultations and more will follow later in the year. Where multiple regulators have responsibility for onshoring the BTS, one regulator has consulted on the proposed changes, to avoid duplicative consultations. We also include links to these consultation versions on our site. However, since these are presented already as consolidated mark-ups by the regulators themselves, we do not supplement the relevant materials in our website.

Annex: Consolidated Legislation

BANK RECOVERY & RESOLUTION DIRECTIVE

 

EU Legislation to be Onshored

Onshoring legislation

Parties affected

 

Consolidated legislation

BRRD Primary legislation

Draft Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018 (published 10/08/2018)

UK banks, building societies, investment firms, banking group companies and central counterparties. Shareholders, depositors and debtholders in these institutions will also be interested. As well as any individual, firm or group that is a market participant or involved in the application of insolvency law in the financial sector

Consolidated Banking Act 2009

BRRD Binding Technical Standards

Regulators responsible: FCA and PRA

Consultations Ongoing:

  • BoE: BoE Resolution CPThe Technical Standards (Bank Resolution And Recovery) (Amendment Etc.) (EU Exit) (No 1) Instrument

  • PRA and FCA: PRA CP26/18 The Technical Standards (Bank Resolution And Recovery Directive) (EU Exit) (No 2) Instrument 2019

 

 

CAPITAL REQUIREMENTS REGULATION

 

EU Legislation to be Onshored

Onshoring legislation

Parties affected

 

Consolidated legislation

CRR Primary legislation

Draft Capital Requirements (Amendment) (EU Exit) Regulations 2018 (published 08/21/2018)

Primarily affects banks, building societies and investment firms already regulated in the UK under the EU CRR

Consolidated CRR

CRR Binding Technical Standards

Regulators responsible: FCA and PRA

 

Consultations Ongoing:

 

  • PRA and FCA: PRA CP26/18 The Technical Standards (Capital Requirements) (EU Exit) (No 1) Instrument and The Technical Standards (Capital Requirements) (EU Exit) (No 3) Instrument

     

  • PRA: PRA CP26/18 The Technical Standards (Capital Requirements) (EU Exit) (No 2) Instrument

     

  • Further consultations expected on one CRR BTS

 

 

EUROPEAN MARKETS INFRASTRUCTURE REGULATION

 

EU Legislation to be Onshored

Onshoring legislation

Parties affected

 

Consolidated legislation

EMIR Primary legislation

Draft Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 (published 10/22/2018)

Primarily affects CCPs, clearing members, their clients, Trade Repositories, TR users and U.K. persons entering into derivatives contracts. Will also, like EMIR, have impacts for persons around the world which enter into derivatives with U.K. persons, through U.K. clearing members or that are ultimately held with CCPs that are regulated or recognized in the U.K.

Consolidated EMIR

Draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 (published 10/05/2018)

Primarily affects Trade Repositories in both the U.K. and the EU that are currently registered with and supervised by the European Securities and Markets Authority and that are planning to continue servicing the U.K. market after Brexit

Draft Central Counterparties (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 (published 07/24/2018)

Primarily affects non-U.K. CCPs

EMIR Binding Technical Standards

Regulators responsible: FCA, PRA and BoE

 

Consultations Ongoing:

 

  • FCA: FCA CP18/28 Technical Standards (European Market Infrastructure Regulation) (EU Exit) (No 1) Instrument 2019

     

  • FCA and BoE: BoE CP – Financial Markets Infrastructure The Technical Standards (European Market Infrastructure) (Amendment Etc.) (EU Exit) (No 1) Instrument

     

  • PRA and FCA: PRA CP26/18 The Technical Standards (European Markets Infrastructure) (EU Exit) Instrument

     

  • Further consultations expected on EMIR BTS

 

 

MARKETS IN FINANCIAL INSTRUMENTS REGULATION

 

EU Legislation to be Onshored

Onshoring legislation

Parties affected

 

Consolidated legislation

MiFIR Primary legislation

Draft Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018

Primarily affects MiFID II-authorized firms including investment banks, stock and futures exchanges, broker-dealers, investment advisers and investment managers

Consolidated MiFIR

MiFIR Binding Technical Standards

Regulators responsible: FCA, PRA and BoE

 

Consultations Ongoing:

 

  • FCA: FCA CP18/28 Technical Standards (Markets In Financial Instruments Regulation) (EU Exit) (No 1) Instrument 2019

     

  • FCA, PRA and BoE: FCA CP18/28 Technical Standards (Markets In Financial Instruments Regulation) (EU Exit) (No 2) Instrument 2019

 

Footnote

1 The following documents were published on November 14, 2018:

  • Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, available here.
  • Outline Of The Political Declaration Setting Out The Framework For The Future Relationship Between The European Union And The United Kingdom, available here.
  • Joint Statement from the EU and U.K. negotiators, available here.

2 The following regulatory consultations have been published:

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.

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Authors
Barnabas W.B. Reynolds
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