UK: Further UK Legislation In Preparation For Brexit Comes Into Force

On December 6, 2018, three pieces of U.K. legislation to onshore EU laws in preparation for Brexit were made. These are:

I. The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 (SI 2018/1318).

A number of technical changes have been made as a result of the consultation process, but these do not affect the fundamental intention and scope of the legislation. The Regulations come into force on December 7, 2018, except for the provisions amending EMIR, which will come in force on exit day. Advance applications for registration of a trade repository must be submitted to the Financial Conduct Authority between December 7, 2018 and immediately before exit day, instead of on exit day.

These Regulations establish: (i) a temporary registration regime to enable U.K. and EU trade repositories to benefit—on complying with certain requirements - from temporary registration while the FCA considers their application; and (ii) a conversion regime that will allow U.K. trade repositories that are currently registered with the European Securities and Markets Authority to be registered as authorized U.K. trade repositories by the FCA from exit day.

II. The Short Selling (Amendment) (EU Exit) Regulations 2018 (SI 2018/1321).

A number of technical changes have been made as a result of the consultation process, but these do not affect the fundamental intention and scope of the U.K. SSR. The U.K. SSR covers only instruments admitted to trading on U.K. trading venues and U.K. sovereign debt. They do not cover instruments admitted to trading or traded on an EEA trading venue or the sovereign debt of EEA governments. The SSR will come into force on exit day and provide for:

a. the FCA to assume ESMA's responsibility for collating and publishing the list of shares principally traded in a third country, including shares which have their principal trading venue outside of the U.K. This relates to the EU SSR exemptions from the reporting requirements, the buy-in regime and restrictions on uncovered short selling for shares which are principally traded in a third country. To ensure continuity, the FCA may recognize ESMA's existing list for up to two years following exit day;

b. notifications by market makers of their intention to use the exemption available under the EU SSR must be made to the FCA before exit day to remain valid. European market makers will be required to join a U.K. trading venue and submit a notification to the FCA at least 30 days ahead of exit day to benefit from the exemption;

c. the continuation of the FCA's powers to restrict short selling in in-scope instruments in the event of a significant fall in the price of a share or in response to a threat to U.K. financial stability or market confidence; and

d. U.K. firms to be able to use U.K. sovereign credit default swaps to hedge correlated assets or liabilities issued by issuers located outside of the U.K. anywhere in the world, rather than in the EU.

III. The Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 (SI 2018/1320).

The U.K. CSDR will come into force on exit day, except for the provisions on third-country CDS notification requirements, which come into force on December 7, 2018. A number of technical changes have been made as a result of the consultation process, but these do not affect the fundamental intention and scope of the U.K. CSDR 2018. The U.K. CSDR are primarily relevant for CSDs operating in the U.K. at the point of exit and CSDs that are currently providing services relating to the U.K. as defined in the CSDR. They are also relevant for end-users of CSD services, market infrastructures with links to U.K. CSDs and firms that undertake settlement internalization.

The U.K. CSDR amend the CSDR transitional regime so that third-country CSDs can continue to provide services relating to the U.K. after Brexit. Third-country CSDs must notify the Bank of England before exit day of their intention to provide services in the U.K. following Brexit. Any third-country CSDs benefitting from CSDR transitional arrangements at the point of exit, and any U.K. CSDs that have applied for authorization prior to exit, will be subject to existing U.K. law rather than the CSDR.

The U.K. CSDR do not onshore the forthcoming EU CSDR settlement discipline provisions. These cannot be transferred into U.K. law under the EU Withdrawal Act 2018 because they are not yet operative. The draft Financial Services (Implementation of Legislation) Bill is due to bring these provisions into effect in the U.K. in due course.

The Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 and Explanatory Memorandum are available at: , the Short Selling (Amendment) (EU Exit) Regulations 2018 and Explanatory Memorandum are available at:  and the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 and Explanatory Memorandum 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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