As we have reported previously, the result of the European Union referendum (Brexit) was announced on 24 June 2016 with a vote in favour of the United Kingdom leaving the EU.

We have issued a series of Brexit updates since the date of the referendum. To access such prior alerts, please visit our Brexit page.

Financial Conduct Authority publishes consultation papers setting out its proposals in the event that the UK leaves the EU without an implementation period

The Financial Conduct Authority (the “FCA”), the UK’s financial regulator, has published its plans for the financial services industry, by way of two consultation papers, in the event that the UK leaves the EU without an implementation period to allow time for the UK to adjust after Brexit.

The two consultation papers separately focus on amendments to the FCA Handbook and binding technical standards (“BTS”), and the temporary permissions regime that will enable EU based financial services firms to continue operating in the UK for a defined period if an implementation period cannot be agreed with the EU as part of an exit deal. The consultation papers do not consider wider policy changes to the UK financial services regulatory regime.

The consultation papers are available on the FCA’s website, which can be accessed here. Responses to the consultations can be submitted to the FCA until 7 December 2018. The FCA intends to publish the final versions of its plans shortly before exit day, which will only come into effect should the UK leave the EU without an exit deal.

FCA Handbook and BTS changes for no-deal Brexit

  • The FCA Handbook Glossary will be updated to insert new definitions such as “EU regulated market” and “exit day”, and the definition of “non-EEA state” will be removed.
  • Amendments will be made to BTS concerning Credit Rating Agencies, Fund Management, EMIR, MiFID/MIFIR, Short Selling and Capital Requirements.
  • Non-legislative material produced by the European Supervisory Authorities or their predecessor bodies (“Level 3 Material”) will not be incorporated into UK law. However, Level 3 Material is likely to continue to be relevant after the UK leaves the EU and market participants should interpret the material “sensibly and purposively”.

Temporary permissions regime

  • In the event that the UK leaves the EU without agreeing an implementation period, a temporary permissions regime will be introduced to enable EU based financial services firms to continue operating as they have been under EU passporting rules.
  • A temporary permission will last for a maximum period of three years, subject to when financial services firms are directed by the FCA to apply for full authorisation in the UK.No equivalent permissions regime has been proposed for the 5,500 UK based firms that rely on passporting rules to operate within the EU.
  • The FCA will take on supervision roles for certain sectors, such as credit-rating agencies, as EU institutions, including the European Securities and Markets Authority, will cease to have jurisdiction over UK based firms.

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In the blur of mega firms, Brown Rudnick stands out as a “global boutique” and has in place a multi-disciplinary, international Brexit Team. We are monitoring and analysing the consequences and considerations for businesses and are ready to advise on the potential legal implications of Brexit. The Brown Rudnick Brexit Team is available to advise on the issues across a broad range of sectors within our areas of expertise.

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