European Union: UK Conduct Regulator Publishes Second Consultation On Brexit-Related Changes To Its Rulebook And Binding Technical Standards

On November 23, 2018, the U.K. Financial Conduct Authority published a second consultation on proposed changes to the FCA Handbook and guidance to ensure a functioning legal and regulatory framework for financial services in the event of a "no-deal" scenario, whereby the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement in place, and there is consequently no transitional period for firms. The proposed amendments will not take effect on exit day if the U.K. enters into a transitional period.

The consultation includes the FCA's further proposals in relation to those Binding Technical Standards that it has been empowered by HM Treasury to amend prior to Brexit and to maintain afterwards. Since the FCA's first consultation on Brexit-related Handbook changes in October 2018, HM Treasury has published further policy notes and/or financial services "onshoring" statutory instruments with proposed amendments to retained EU law. Many of the FCA's proposals on the BTS are consequential in nature and follow the amendments proposed in the statutory instruments.

The consultation covers:

  1. Cross-cutting issues. The FCA recaps its proposals in its October consultation to deal with the so-called cross- cutting issues that span the Handbook and the BTS. Further cross-cutting issues identified since its October consultation relate to:

    1. The Distance Marketing Directive: the FCA has not identified a reason why it should diverge from the baseline approach of treating EEA states in the same way as third countries. Therefore, after exit day, the FCA's DMD-related Handbook provisions will no longer apply to U.K. firms' distance marketing activity involving EEA-based consumers.
    2. The E-Commerce Directive: HM Treasury proposes to revoke legislation that relates to the cross-border provision of financial services via the ECD's exemption from host-state regulation. The FCA is making consequential Handbook amendments to reflect this. The result of these changes is that EEA firms conducting cross-border e-commerce activities will not, post-Brexit, be able to sell online-only regulated financial services to U.K. consumers without obtaining U.K. authorization.
  2. Amendments to Specific Sourcebooks and Chapters in the Handbook. The consultation paper sets out a detailed overview of the Handbook sourcebooks and chapters covered in the consultation, along with key affected stakeholders. The FCA is, for the most part, making cross-cutting changes consequential on statutory instruments published by HM Treasury since the October consultation. Further explanation is provided in areas where the FCA considers it helpful or where it has deviated, along with HM Treasury, from the baseline approach of treating EEA firms as third-country firms after exit day. These areas are:

    1. the FCA's high-level standards covering firms' systems and controls, the Senior Managers and Certification Regime and the Approved Persons Regime;
    2. prudential standards for the contractual recognition of bail-in under the U.K. legislation implementing the Bank Recovery and Resolution Directive, where EU law contracts will require such clauses, but only in new contracts or amended contracts after Brexit;
    3. business standards relating to motor vehicle liability insurers and the handling of claims;
    4. business standards relating to compensation disclosures;
    5. Glossary definitions and the scope of certain conduct of business rules;
    6. changes to baseline (third-country) approach for the rules on appropriateness assessments for MiFID business, so that the status quo is maintained for EEA Undertakings for Collective Investment in Transferable Securities and for shares and bonds trading on or admitted to trading on EEA Regulated Markets (such financial instruments will continue to be treated as non-complex);
    7. the current exemption for manufacturers of UCITS funds from providing a Key Investor Document under the Packaged Retail and Insurance-based Investment Products Regulation will be retained post-exit day;
    8. business standards relating to insurance-linked securities;
    9. the MiFID tied agent regime will be narrowed to refer only to FCA-registered tied agents (that is, tied agents of U.K. MiFID investment firms that are established in the U.K. but which do not carry on any business in the U.K.);
    10. amendments to the Listing, Disclosure and Transparency rules to reflect the U.K.'s post-Brexit primary markets regime that will apply to all issuers that have securities admitted to trading on a U.K. Regulated Market or admitted to listing in the U.K. and to all issuers that are making a public offer of securities in the U.K., in each case irrespective of the issuer's country of incorporation; and
    11. a summary of the amendments the FCA expects to make in due course to relevant sourcebooks, once statutory instruments are published to reflect that the U.K. will be excluded, on a "no-deal" Brexit, from the EU's Emissions Trading System.
  3. The Temporary Permissions Regime for a No-Deal Brexit. The FCA set out in its October 2018 consultation how it envisaged the Government's proposal to introduce a temporary permissions regime for inbound passported EEA firms and funds would work and on how certain FCA rules would apply to firms with temporary permissions. This consultation sets out further how the FCA envisages that its rules would apply to firms in the regime and sets out the proposed application of rules relating to the SM&CR and the APR, the Financial Services Compensation Scheme, the Financial Ombudsman Service and to authorization status disclosures.
  4. Proposed Amendments to BTS for Which the FCA is Solely or Jointly Responsible. The FCA's October 2018 consultation set out the FCA's proposed changes to some, but not all, of the financial services-related BTS, namely the BTS that relate to credit rating agencies, fund management, trade repositories, MiFID II, short selling and capital requirements. This consultation sets out the FCA's proposed changes and draft EU Exit instruments for almost all of the remainder of BTS for which the FCA is responsible. The finalized EU Exit instruments will need to be approved by HM Treasury. Further detail is provided on the proposed amendments to the BTS for: (i) the trade transparency requirements under the Markets in Financial Instruments Regulation; (ii) the PRIIPs Regulation; (iii)the Insurance Distribution Directive; (iv) the Payment Accounts Directive; (v) the BRRD, Financial Conglomerates Directive and the capital requirements-related BTS; and (vi) EMIR.

    A "cut-off" point of 23.59 GMT on October 24, 2018 has been used by the FCA for its consultation, which covers the BTS that have either been published in the Official Journal of the European Union or published in near final form by the European Commission by that time. Where BTS have not yet reached this stage in the EU, adjustments will need to be made at a later date by HM Treasury to onshoring legislation and/or to regulators' powers to amend technical standards. The FCA will need to consult further on those BTS in due course.
  5. CRAs and Trade Repositories. The consultation paper sets out FCA's proposals to make minor amendments to its Decision Procedure and Penalties Manual and its Enforcement Guide to reflect the FCA's post-Brexit role as the supervisor of these entities.
  6. The FCA's Non-Handbook Guidance. The FCA confirms in the consultation paper that its existing non-Handbook guidance that relates to EU or EU-derived law will remain relevant post-Brexit. It is consulting on a draft interpretive guide to such material after exit day.

Comments on the consultation are requested by December 21, 2018. The FCA expects to provide feedback on the consultation and publish near-final instruments in early 2019.

The consultation paper (FCA CP 18/36) is available at:, the feedback form is available at:, details of the FCA's earlier consultation on BTS (FCA CP18/28) are available at:, details of the FCA's proposals for a temporary permissions regime (FCA CP 18/29) are available at: and details of the proposed arrangements for CRAs and Trade Repositories are available at:

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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