Working Towards the End of the Brexit Transition Period
Last week, the FCA published a reminder that the transition period ends at 11.00pm on 31 December 2020, at which point EU laws will no longer apply and passporting will end. There are a number of helpful publications to offer some guidance for firms around whether they will be affected and what actions they may need to take if they are. Their main ‘Brexit’ landing page is a valuable index of information and updates.
The FCA has used the ‘temporary permissions regime’ to enable firms and funds which passport into the UK to continue operating in the UK, provided that they notify the FCA before 30 December 2020.
Firms should be aware that as passporting will end on 31 December 2020, firms that intend to carry on providing services currently covered by a passport will need to ensure they will be able to do so after the end of the transition period. Where firms intend to cease currently passported services to or from the UK at the end of the transition period, they should make sure that they act to ensure the right outcomes for their customers, and that they communicate with affected customers early enough for them to be able to take appropriate and informed decisions.
The ’onshoring’ process – whereby legislation and regulatory requirements are amended so that they are able to work in a UK-only context, such as EU legislation that will, from 2021, form part of UK law as required by the European Union (Withdrawal) Act 2018.
In practice, this means that some requirements for firms and regulated individuals will have changed, and the Temporary Transitional Power allows the FCA to make transitional provisions for a temporary period to enable firms to make the necessary changes. Whilst the FCA intends to use the TTP on a broad basis until 31 March 2022, there are some areas the TTP will not apply, such as:
Payment Services – strong customer authentication and secure communication
Electronic commerce EEA firms
Mortgage lending after the transition period against land in the EEA
Use of credit ratings for regulatory purposes
MIFID II transaction reporting requirements
EMIR reporting obligations
SFTR reporting obligations
Client Assets Specialist Sourcebook rules (CASS)
The full list and additional information is available at:
Where the TTP does apply, then the duration of the TTP transition period should be used by firms and individuals to fully prepare for compliance with the required changes.
The FCA have a handy reference page to break down how UK firms might be affected by the end of the transition period. As it stands, on 9 December 2020, we still do not know whether a trade agreement will have been reached before the end of the transition period. Until we know what the final position is, firms must consider all the possibilities, including the potential that an agreement will not be reached, or that equivalence determinations are not agreed.
The FCA recommends that firms should consider:
Whether they provide regulated products or services to customers resident in the EEA
Whether they have customers based in the EEA, including UK ex-pats now based in the EEA
Whether they are marketing financial products in the EEA
Whether they have agents in the EEA
Whether they transfer personal data between the UK and the EEA or vice versa
Whether they outsource or delegate to an EEA firm or vice versa
Whether they are party to legal contracts which refer to EU law
If any of these apply to your firm, now is the time to consider how the legal basis for that business might change. Outsourcing is a major factor that some firms may not have fully considered. Identifying service providers that are likely to be affected by the end of the transition period is the first step – ideally, agreements should be reached about how service can continue between the firm and the service provider.
In some cases, firms may also need to consider the possibility of engaging with European regulators to make sure they can continue doing business in 2021. The FCA have also provided a list of EEA regulators.