On 21 March 2019, the FCA published a speech from its Executive Director of International, Nausicaa Delfas, on preparations for, and potential residual risk of, a no deal Brexit.

Key takeaways from the speech include:

  • the FCA emphasises that notifications to enter the temporary permissions regime (TPR) must be made by the end of 28 March 2019;
  • so far over 1,000 EU firms and funds have decided to enter TPR;
  • the first landing slots for when firms will be able to submit their application for authorisation are expected to be October to December 2019;
  • in a no deal scenario, firms will have 15 months to transition to most of the changes brought about through onshoring EU law into UK law. Some of the changes will, however, apply from exit day. In this respect the FCA expects firms and other regulated entities to undertake reasonable steps to comply with the changes to their regulatory obligations by exit day. The FCA are conscious of the scale, complexity, and magnitude of some of the changes and intends to act proportionately. In particular, it will “not take a strict liability approach” and does not “intend to take enforcement action against firms and other regulated entities for not meeting all requirements straight away, where there is evidence they have taken reasonable steps to prepare to meet the new obligations by exit day”; and
  • the FCA is focusing on continuity, and has agreed memoranda of understanding with EU and EU Member State regulatory authorities to ensure cooperation in the event of a no deal.

Regarding residual risks which still may arise from Brexit, the FCA notes that:

  • UK and global banks are transferring activities to EU-incorporated entities, but are to some extent dependent on their clients agreeing to move contracts to these new entities, and the FCA is aware there is varying progress with this;
  • the process of migrating businesses, assets and contracts in a short period could pose operational risks;
  • there is the issue of contract continuity. The EU does not have a pan-European equivalent to the TPR and the Financial Services Contracts regimes. While some Member States are taking action, and firms are taking their own action, there are likely to be some remaining areas where the legal risks relating to the ongoing service of existing customers have not been fully mitigated; and
  • there are the implications of a lack of equivalence in certain areas – the speech provides the example of the EU’s trading obligation for shares and derivatives will require EU firms to trade these instruments on EU or equivalent venues.