Investment Management Update
This issue includes:
- Fairness of variation terms in financial services consumer contracts: FCA finalised guidance
- Diversity in financial services: FCA speech
- SMEs’ access to the FOS: FCA final rules
- FCA findings on review of MAR implementation: Market Watch
- Misleading financial promotions implying unregulated activities as regulated: FCA Dear CEO
- FCA sector views
- Operation of the AIFMD: European Commission report
- Implementation of the EU Securitisation Regulation and amendment to CRR: FCA final and near-final rules
- Proposed Investment Firms Regulation and Directive: Council of EU agrees position
- Client sustainability preferences: European Commission publishes draft Delegated Regulation under MiFID
- Integrating sustainability risks and factors into MiFID II: ESMA consultation paper
- Integrating sustainability risks and factors into UCITS Directive and AIFMD: ESMA consultation
- Notification period opens for the temporary permissions regime
- Information to clients on Brexit: ESMA statement
- Financial Services Contracts Regime: Draft Brexit SI, FCA statement and FCA consultation
- Draft Brexit SI laid before Parliament: Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019
- Brexit SI: Capital Requirements (Amendment) (EU Exit) Regulations 2018 (SI 2018/1401)
- Brexit SI: Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (2018/1403)
- Draft Brexit SI laid before Parliament: Collective Investment Scheme (Amendment etc.) (EU Exit) Regulations 2019
- Draft Brexit SI laid before Parliament: Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019
- Draft Brexit SI: Financial Conglomerates and other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019
- Draft Brexit SI: Financial Services and Markets Act 2000 (Amendment EU Exit) Regulations 2019
- Draft Brexit SI: Securitisation (Amendment) (EU Exit) Regulations 2019
- Draft Brexit SI: Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulation 2019
- Draft explanatory note for Brexit SI and draft FCA rules: Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019
- Draft Brexit SI: Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019
Fairness of variation terms in financial services consumer contracts: FCA finalised guidance
The Financial Conduct Authority (FCA) has published finalised guidance (FG18/7) on the fairness of variation terms in financial services consumer contracts under the Consumer Rights Act 2015 (CRA) and a summary of feedback to its previous consultation on the issue, GC18/2. In the finalised guidance, the FCA gives its view on the factors that firms should consider when thinking about fairness issues under the CRA when drafting and reviewing unilateral variation terms in their consumer contracts. The FCA also sets out the its understanding of the provisions contained in the CRA and recent UK and EU case law regarding unilateral variation terms. In particular, for contracts of indeterminate duration, the FCA takes note of EU case law which is clear that giving notice and cancellation rights to the consumer do not alone achieve fairness. Other factors are relevant in assessing fairness, including transparency.
The FCA stresses that it expects firms to consider FG18/7 when they review their existing contracts and when they draft new ones. It also reminds firms that they should ensure that variation terms in their contracts are transparent and not unfair and that Principles 6 and 7 of the FCA’s Principles of Businesses are significant when drafting and operating consumer contracts.
Diversity in financial services: FCA speech
The FCA has published a speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, on diversity in the financial services. In his speech, Mr Woolard highlights that diversity has moved beyond being "nice to have" to being recognised as a commercial imperative for firms. While progress has been made in relation to diversity and inclusion, more needs to be done. For example, the percentage of women at the senior management level below the Board has only increased by 1.5 per cent over the last 10 years, from 14 per cent to 15.5 per cent. However, the key to diversity is broader, incorporating different voices from people with varied life experiences.
Mr Woolard emphasises that a firm’s approach to diversity and inclusion portrays a picture of the culture of the firm and the way firms treat non-financial misconduct allegations is relevant to the FCA’s assessment of the firm. In addition, Mr Woolard states that the FCA considers diversity and inclusion may have an impact on the fitness and propriety (in particular, competence and character) of senior managers. Mr Woolard flags that over the last year or so, there has been an increase in the number of reports to the FCA which concern issues of discrimination and sexual harassment in financial services. Mr Woolard suggests that anyone involved in this debate needs to think through their response carefully. The FCA is seeing some firms take a "zero-risk approach" in response to #MeToo, which, he states, “rather than having the intended effect of making women safer in the workplace, I fear may see the re-emergence of cosy boys’ clubs and men-only networks. That misses the point.”.
Mr Woolard’s key takeaway is that "non-financial misconduct is misconduct, plain and simple".
SMEs’ access to the FOS: FCA final rules
The FCA has published the Small Business (Eligible Complainant) Instrument 2018. The instrument contains the final rules to extend the access to the Financial Ombudsman Service (FOS) to more small and medium-sized enterprises (SMEs), larger charities and trusts, and a new category of personal guarantors. The final rules will appear in the FCA’s Dispute Resolution sourcebook (DISP) and come into force on 1 April 2019.
FCA findings on review of MAR implementation: Market Watch
In its latest edition of Market Watch (December 2018), the FCA updates firms on its findings following a review of industry implementation of the Market Abuse Regulation (MAR). The review involved the FCA meeting with firms, surveying issuers and asset management firms, and the FCA analysing its own data.
The FCA’s main message is to reinforce the responsibility every market participant has in protecting market integrity. It expects firms to be vigilant and proactive in preventing and responding to market abuse. In particular, the FCA explains that the most effective compliance it saw during its review involved market participants being able to demonstrate that their risk assessments were calibrated to the markets and the asset classes in which they operated. In addition, the better systems are flexible and responsive to changes in their business, market practice and the regulatory environment. These changes should include consideration of new technologies and vigilance in being alert to potential new forms of abusive behaviour.
During its review, the FCA found that many market participants have a good understanding of their obligations under MAR and have configured their systems and controls accordingly. However, it found that there remain some areas where firms are struggling to comply, including the surveillance of all orders and transactions. The FCA emphasises that it expects all firms now to be fully compliant with the obligation to undertake quote surveillance.
Topics considered by the FCA in its newsletter include:
- suspicious transaction and order reports (STORs);
- market soundings;
- cleansing following a sounding;
- insider lists;
- obligations for issuers under MAR; and
- manufactured credit events.
Misleading financial promotions implying unregulated activities are regulated: FCA Dear CEO
Firms carrying on both regulated and unregulated business should take heed of the FCA's latest "Dear CEO letter". In its letter, the FCA states that it has become aware of firms issuing financial promotions which suggest or imply that all of the activities which they undertake are regulated by the FCA and / or the Prudential Regulation Authority (PRA) when, in fact, they are not. The FCA reminds firms that if they carry on activities which are not regulated by the FCA and / or the PRA, then financial promotions, in whatever form of media, should make clear those aspects which are not regulated.
Firms are also reminded:
- that a firm must not indicate or imply that it is regulated or otherwise supervised by the FCA in respect of business for which it is not regulated by the FCA; and
- before they approve a financial promotion for communication by an unauthorised person, they must confirm that the promotion complies with the FCA rules on financial promotions. This includes ensuring that the financial promotions which they approve are fair, clear and not misleading.
The FCA stresses that it has the power to direct a firm to withdraw an advert (or its approval of an advert), or to prevent it from being used in the first place. With the FCA cautioning firms that it is their responsibility to ensure compliance and that the FCA monitors financial promotions across the board, firms should be diligent in issuing and approving financial promotions.
The FCA has published its 2019 Sector Views which provides an annual analysis of the changing financial services landscape and impacts on consumers and markets. In the cross-sector themes section of the report, the FCA examines common drivers of change emerging across the industry with a focus on:
- technology led changes;
- societal changes and their impact on financial needs of different generations;
- the potential impact of Brexit; and
- the macroeconomic environment.
In the section of the report on the investment management sector, the FCA highlights that in recent years, the biggest drivers of change have been:
- the low interest rate environment;
- significant regulatory change and scrutiny;
- policy changes; and
- technological developments.
For passporting and delegation, the FCA notes that Brexit has been an increasingly important factor. The FCA’s main concerns in this sector continue to be unsuitable products and services, high charges, and low quality products and services. It states that these, as well as consumer harm caused by financial or data loss from financial and cyber crime, could have knock-on effects for confidence and participation.
Two main areas of challenges in the investment management sector which the FCA singles out are:
(1) the pricing and quality of services provided in the areas of asset management, institutional intermediaries and advice, and custody and investment administration; and
(2) threats to the stability and resilience of the UK’s financial markets through the oversight problems caused by automation in the financial services industry and greater outsourcing. The technology-linked risks are covered in our related blog: Technology high on the FCA's radar for investment managers.
The FCA welcomes comments on the paper to improve future editions and its business planning.
Operation of AIFMD: European Commission report
The European Commission has published a report on the application and scope of the Alternative Investment Funds Managers Directive (AIFMD), its impact on investors, AIFs and AIFMs within the EU and elsewhere, and the degree to which its objectives have been met. The Commission is required to conduct a review of the application of the AIFMD under Article 69. The report, prepared by KPMG, concludes that the AIFMD has played a major role in helping to create an internal market for AIFs and a harmonised and stringent regulatory and supervisory framework for AIFMs. While nearly half of the survey respondents agreed that the AIFMD is not applied consistently between member states, most interviewees indicated that only a small number of areas need further harmonisation in order to prevent rule arbitrage and to ensure a common level playing field; very few interviewees called for full harmonisation.
Most of the AIFMD provisions are assessed as having achieved their objectives. However, the report also identifies areas that require further analysis, such as diverging interpretations of the rules by national competent authorities and overlaps in reporting requirements and with other EU disclosure rules. The report represents the first step in the AIFMD review process. The Commission will continue its review of the AIFMD and will report in 2019 to the European Parliament and the Council.
Implementation of the EU Securitisation Regulation and amendment to the CRR: FCA final and near-final rules
The FCA has published a policy statement containing final and near-final rules on the implementation of the EU Securitisation Regulation and amendments to the Capital Requirements Regulation (CRR) made by Regulation ((EU) 2017/2401). The final rules came into force on 1 January 2019 and are set out in the Securitisation Regulation Implementation Instrument 2018. The near-final rules are contained in the draft Securitisation Regulation Implementation (Fees for Third Party Verifiers) Instrument 2019, which is appended to the policy statement. Changes made to the FCA Handbook include amendments to the sourcebooks FUND, COLL and IFPRU.
Proposed Investment Firms Regulation and Directive: Council of EU agrees position
The Council of the EU has published a press release announcing that its Committee of Permanent Representatives (COREPER) has agreed its position on the proposed Investment Firms Regulation (IFR) and Investment Firms Directive (IFD). The Council has also published its compromise proposals on the IFR and the IFD. The IFR and the IFD set out a new, proportionate, prudential regulatory framework for investment firms.
The Council and the European Parliament will now begin trialogue negotiations on the proposals.
Client sustainability preferences: European Commission publishes draft Delegated Regulation under MiFID
As part of its action plan on financing sustainable growth (see our previous publication, Sustainable finance: no longer a niche sector?) and following a consultation in May last year, the European Commission has published a draft Delegated Regulation to amend the MiFID II Organisational Requirements Regulation (Delegated Regulation 2017/565). The purpose of the Delegated Regulation is to ensure that firms providing financial advice and portfolio management take into account client sustainability preferences in the selection of financial products offered to relevant clients. While the existing MiFID II suitability assessment includes many factors, the non-financial objectives of a client, such as environment, social and governance (ESG) issues, are not usually considered. This new process, therefore, introduces an additional layer of complexity for firms.
Feedback from the Commission’s consultation indicated that some stakeholders are reluctant to change their relatively new MiFID II processes. Despite this, and following the international trend, the Commission is convinced of the urgency to move ahead with its sustainable finance agenda and is progressing with its proposals.
The Commission cannot officially adopt these draft rules until new disclosure provisions for sustainable investments and sustainability risks, which put in place an EU-wide definition for ESG considerations, are agreed at EU level. Once adopted by the Commission, the draft Delegated Regulation will enter into force 20 days after publication in the Official Journal of the EU, unless objection is raised by the European Parliament or the Council of the EU. Thereafter, there is a 12 month implementation period (although the explanatory memorandum refers to a conflicting 18 month implementation period).
Nevertheless, the Commission indicates that the publication of this draft Delegated Regulation should enable firms to prepare to take ESG considerations and preferences into account in the suitability assessments they undertake. It will be a relief to industry that the Delegated Regulation does not require existing suitability assessments to be revisited.
Integrating sustainability risks and factors into MiFID II: ESMA consultation paper
In response to the European Commission’s July 2018 request for technical advice from the European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) on its legislative proposals on sustainable finance, ESMA has published a consultation paper on integrating sustainability risks and factors in MiFID II. ESMA states that it liaised closely with EIOPA in the preparation of the consultation paper to ensure consistency across sectors. The consultation paper covers the topics of organisational requirements, risk management and product management. It also includes suggested amendments to the ESMA guidelines on MiFID II product governance requirements and the ESMA guidelines on certain aspects of the MiFID II suitability requirements. The deadline for providing comments is 19 February 2019, and ESMA intends to publish a final report on 30 April 2019.
Integrating sustainability risks and factors into UCITS Directive and AIFMD: ESMA consultation
ESMA has issued a consultation paper outlining its proposals in response to a request from the European Commission to provide technical advice on how to integrate sustainability risks into both the UCITS Directive and the AIFMD. "Sustainability risk" has been described by ESMA as the risk of fluctuation in the value of positions in a fund’s portfolio due to ESG factors.
ESMA’s proposals aim to clarify that all authorised fund managers subject to the UCITS and AIFMD regimes will need to incorporate sustainability risks into their internal processes. Proposed changes to the UCITS and AIFMD regimes include:
- incorporation of sustainability risks within organisational procedures, systems and controls to ensure that they are properly taken into account in the investment and risk management processes;
- consideration of the required resources and expertise for integration of sustainability risks;
- clarification that the integration of sustainability risks is part of the responsibilities of senior management;
- consideration of the various conflicts of interest arising in relation to sustainability risks;
- consideration of sustainability risks when selecting and monitoring investments, designing written policies on due diligence and implementing effective arrangements; and
- explicit inclusion of sustainability risks when establishing and maintaining a documented risk management policy.
The consultation closes on 19 February 2019. ESMA aims to provide the finalised technical advice to the European Commission on the integration of sustainability risks into the UCITS Directive and AIFMD by 30 April 2019.
Notification period opens for the temporary permissions regime
In December 2017, the Government announced that in the event of a "no deal" Brexit, it would introduce a temporary permissions regime (TPR) for inbound passporting EEA firms and funds. If there is no implementation period, the UK will become a ‘third-country’ and EEA firms will no longer be able to passport funds and services into the UK. Both firms and investment funds will be required to seek authorisation from the FCA to access the UK market.
Under the TPR, EEA firms currently passporting into the UK can notify the FCA that they wish to make use of a temporary permission to access the UK market. Once within the TPR, firms will have a maximum of three years (depending upon their allocated "landing slot") within which to obtain recognition or authorisation in the UK.
Fund managers will need to notify the FCA which of their passports they wish to continue to use in the UK temporarily using Connect, the FCA’s online system to submit applications and notifications. On 7 January 2019, the FCA published a direction to operators of EEA UCITS and a direction to operators of AIFSs, EuVECAs, EuSEFs and certain AIFMs to make temporary permissions notifications. Notifications need to be submitted between 7 January 2019 and the end of 28 March 2019. The FCA has published a Guide to Connect for Fund Managers and a Guide to Connect for Firms.
Fund managers should not wait for confirmation of whether there will be a Brexit deal before they submit their notification. Once the notification window has closed at the end of 28 March 2019, fund managers that have not submitted a notification will be unable to use the TPR and will not be able to continue marketing the fund or provide services into the UK without appropriate authorisation.
Information to clients on Brexit: ESMA statement
ESMA has published a statement reminding firms of their obligations under MiFID to disclose information to clients in the context of Brexit. The statement is addressed to UK firms that provide services to the EU27 countries (whether directly or through a branch) and to EU27 firms that interact with clients based in the UK (whether directly or through of a branch). In its statement, ESMA:
- reminds firms of their obligation to provide information to clients on: (1) the implications of Brexit on existing and new contracts; and (2) the impact of Brexit-related measures that a firm has taken or planned;
- indicates that the client information should at least address:
- the impact of Brexit;
- information on the actions that are being taken to properly inform clients and prevent any detriment to them;
- the implications of any corporate restructuring, including any relevant changes to contractual terms arising from corporate restructuring; and
- contractual and statutory rights, including the right to cancel the contract and any right of recourse. In particular, firms should highlight any changes to clients' contractual relationship with the firm and any impact on specific contracts that may occur as a result of the firm's actions;
- highlights that any communication to clients should be clear and in plain language and should attempt not to cause undue concern. Within these communications, clients should be informed of who they can contact for further information; and
- reminds firms to finalise and implement suitable plans in order to mitigate any risks stemming from the UK withdrawal in a suitable timeframe.
Financial Services Contracts Regime: Draft Brexit SI, FCA statement and FCA consultation
On the UK’s exit from the EU, EEA financial services providers currently exercising EEA passporting rights in the UK will lose these rights. To mitigate this abrupt loss of rights, HM Treasury has published a draft statutory instrument (SI), the Financial Services Contracts (Transitional and Saving Provision) (EU Exit) Regulations 2019, accompanied by an explanatory note, which aims to create a "Financial Services Contracts Regime" (FSCR). The FSCR applies automatically to firms that do not enter the TPR or those that leave the TPR without full UK authorisation. It aims to allow for the orderly wind down of their UK regulated activities. Such firms will be able to continue to carry out business to the extent necessary to run off pre-existing contractual obligations in the UK (for five years from the date of entering the regime, or 15 years for contracts of insurance), but not to undertake new business. HM Treasury has the power to extend the regime under certain circumstances. Further details are given in an Annex to the explanatory note, Run-off regime for EEA firms that currently passport into the UK under Financial Services and Markets Act 2000. HM Treasury intends to lay the SI before Parliament before the UK’s exit.
In a statement on the FSCR, the FCA emphasises that the regime is created solely to allow EEA firms that currently passport into the UK to run off existing UK contractual obligations and conduct an orderly exit from the UK market.
EEA firms that do not enter the TPR or those that leave the TPR without full UK authorisation are categorised into two buckets under the FSCR:
- supervised run-off (SRO) – similar to the TPR, these EEA firms will be deemed as authorised and will be regulated and supervised by the UK regulators. SRO is for EEA firms with a UK branch, firms that enter the TPR but exit without UK authorisation and firms that hold top-up permissions before exit day; and
- contractual run-off (CRO) – firms under this regime may not have an existing relationship with UK regulators and will remain supervised by their home state regulators. CRO is for firms without a UK branch that do not enter the TPR or do not hold top-up permissions.
Under both categories, the firms will not be able to enter into new contracts with UK customers; they will only be allowed to carry out the regulated activities which are required to service their pre-existing contracts and wind down relevant contracts.
Firms can be moved between SRO and CRO at the discretion of the regulators but will still need to be authorised in their home state and must notify the FCA if their authorisation is cancelled or varied.
The FCA has published a consultation paper "Brexit and contractual continuity" (CP19/2) which sets out the details of the FSCR and the rules the FCA proposes to apply to firms in the regime. The consultation period ends on 29 January 2019.
EEA firms managing UK authorised funds will not be able to continue to manage those funds under FSCR after exit day. Those firms should notify the FCA in order to enter the TPR to benefit from the transitional period. The same applies to trustees or depositaries of such funds.
Other Brexit SIs
Draft Brexit SI laid before Parliament: Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019
Draft versions of the Long-term Investment Funds (Amendment) (EU Exit) Regulations 2019 and the related explanatory memorandum, as laid before Parliament, have been published. When in force, the SI will enable UK funds managers to register or be authorised with the FCA in order to market ELTIFs under the new label Long-term Investment Fund (LTIF). The SI will come into force on exit day, except for amendments relating to the Technical Standards Regulations, which will come into force on the day after the day on which the Regulations are made. See our Update of 7 November 2018 for a related report.
Brexit SI: Capital Requirements (Amendment) (EU Exit) Regulations 2018 (SI 2018/1401)
The Capital Requirements (Amendment) (EU Exit) Regulations 2018 (SI 2018/1401) has been made. The SI is published alongside its explanatory memorandum. The SI will make amendments to aspects of the retained CRR and certain delegated legislation to ensure they continue to operate effectively post-Brexit. The SI also addresses sector specific domestic legislation implementing CRD IV to ensure it continues to function post-exit. While the SI amends cross-references to other EU legislation, some remaining cross-references will be addressed through subsequent onshoring SIs.
The SI will come into force on exit day, with the exception of certain provisions specified in Regulation 1(2) which came into force on 20 December 2018. The FCA and the PRA will update their rulebooks and relevant BTS to reflect the changes introduced through this SI. See our Updates of 5 December 2018 and 24 October 2018 for Brexit changes to the FCA Handbook and BTS.
Brexit SI: Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (2018/1403)
The Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018 (SI 2018/1403), together with an explanatory memorandum and an impact assessment on Brexit SIs relating to financial services, have been made. The SI will ensure that the MiFID II regime continues to operate effectively and that investors are afforded the same level of protection in a post-Brexit landscape. Regulations 1, 2, 3, 15(5) and 20 came into force on 20 December 2018 and the other provisions will come into force on exit day. See our Update of 10 October 2018 for a discussion on the draft SI.
Draft Brexit SI laid before Parliament: Collective Investment Scheme (Amendment etc.) (EU Exit) Regulations 2019
Draft versions of the Collective Investment Scheme (Amendment etc.) (EU Exit) Regulations 2019 and its accompanying explanatory memorandum, as laid before Parliament, have been published. The Regulations will come into force on exit day, except for certain provisions specified in Regulation 1(3). The SI will make amendments to retained EU law related to the UCITS Directive for investment funds and their managers to ensure it continues to operate effectively after Brexit. See our Update of 24 October 2018 for discussion on the SI.
Draft Brexit SI laid before Parliament: Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019
Draft versions of the Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019 and its explanatory memorandum, as laid before Parliament, have been published. The Regulation will come into force on exit day. The purpose of the SI is to make amendments to the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulations 2017 and retained EU law in relation to PRIIPs and fix any deficiencies to the legislation to ensure that is continues to operate effectively in the UK on exit day. See our Update of 5 December 2018 for discussion on the SI.
Draft Brexit SI: Financial Conglomerates and other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019
HM Treasury has published a draft version of the Financial Conglomerates and other Financial Groups (Amendment etc.) (EU Exit) Regulations 2019. The supplementing explanatory note was published in October 2018. The purpose of the SI is to ensure that the Financial Conglomerates and Other Financial Groups Regulations 2004 (FICOR) will remain operative in a UK-only context post-exit. The SI:
- amends the geographical restriction in the definition of a "financial conglomerate" so that one entity must be located within the UK, rather than the EEA, while other(s) may be located anywhere in the world. The Treasury expects that this change will not affect financial conglomerates already operating in the UK;
- amends the definition of a "competent authority" to refer to UK regulators only;
- transfers the functions of the European Banking Authority (EBA) and ESMA to the relevant UK authorities with regards to publishing and maintaining information, for example, a list of financial conglomerates;
- removes the unilateral obligation on UK supervisors to share information or cooperate with EU authorities; and
- gives the PRA and the FCA the responsibility for correcting deficiencies in the Financial Conglomerates Directive BTA and for ensuring these BTS remain fit for purpose after exit.
HM Treasury intends to lay this instrument before Parliament prior to exit day. The FCA and the PRA will update their rulebooks and relevant BTS to reflect the changes introduced through this SI. See our Updates of 5 December 2018 and 24 October 2018 for Brexit changes to the FCA Handbook and BTS.
Draft Brexit SI: Financial Services and Markets Act 2000 (Amendment EU Exit) Regulations 2019
HM Treasury has published a draft version of the Financial Services and Markets Act 2000 (Amendment EU Exit) Regulations 2019. The supplementing explanatory note was published in December 2018 and reported in our Update of 5 December 2018. The SI makes a number of amendments to the Financial Services and Markets Act 2000 to ensure that the financial services framework continues to operate effectively in a no-deal scenario and is not intended to make substantive policy changes.
Draft Brexit SI: Securitisation (Amendment) (EU Exit) Regulations 2019
HM Treasury has published a draft version of the Securitisation (Amendment) (EU Exit) Regulations 2019, accompanied by an explanatory note. The SI identifies and amends deficiencies in the Securitisation Regulation to ensure that it can remain operative in a UK-only context post-Brexit.
The Treasury intends to lay this instrument before Parliament prior to exit day. The FCA and the PRA will be updating their rulebooks and relevant BTS to reflect the changes introduced through this SI.
Draft Brexit SI: Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulation 2019
HM Treasury has published a draft version of the Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulation 2019, together with an explanatory note. The SI makes amendments to retained EU law related to the EU Benchmarks Regulation to ensure that it continues to operate effectively in the UK once the UK has left the EU. See our Update of 5 December 2018 for more detail on the SI.
Draft explanatory note for Brexit SI and draft FCA rules: Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019
HM Treasury has published a draft explanatory note for the Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019. This SI will make amendments to the Gibraltar Order 2001 and the Financial Services and Markets Act 2000 to allow financial services firms authorised in Gibraltar to continue to provide services and establish branches in the UK. The government of Gibraltar will be adopting a similar and reciprocal approach to the UK in its own ‘EU Exit legislation’. The SI:
- deletes provisions relating to financial services firms in the EEA, other than Gibraltar, being able to continue their access to and between the UK and Gibraltar markets from exit day;
- provides that financial service firms incorporated and headquartered in Gibraltar will not be able to join the TPR or the FSCR. This reflects the UK government’s commitment to preserve UK access for Gibraltarian firms as now; and
- includes a provision to continue the existing market access framework between the UK and Gibraltar until at least the end of 2020. The mechanism can be extended by one year at a time.
The FCA has also published a statement on the treatment of Gibraltar in the FCA Handbook post-Brexit. The FCA intends to make rules and guidance to ensure that authorised financial services firms in Gibraltar retain access to UK markets after exit day. It has published draft rules and guidance which it intends to finalise shortly before the UK leaves the EU.
Draft Brexit SI: Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019
HM Treasury has published a draft version of the Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019, accompanied by an explanatory note. The changes introduced by the SI will ensure that the UK continues to have robust confidential information with other regulatory and supervisory authorities. The SI:
- ensures that the same restrictions and protections which apply when UK regulators disclose confidential information to third country authorities apply to EEA member states after exit. This requires the UK to enter into cooperation agreements with EEA member states;
- removes the requirements on UK regulators to seek the consent of a European Supervisory Authority or EEA regulator before onwardly disclosing confidential information in cases where there is no equivalent provision in respect of third countries; and
- amends references to EU directives and institutions to reflect the UK’s new position outside the EU.
The Treasury notes that there are no PRA Rulebook or BTS changes planned in this area and intends to lay the SI before Parliament prior to exit.