The Financial Markets Law Committee (FMLC) has published a letter that draws attention to certain issues of legal uncertainty arising out of clause 3 of the European Union (Withdrawal) Bill 2017 (the Bill).

Clause 3(1) of the Bill provides that “direct EU legislation” forms part of UK domestic law on and after exit day, provided that it is “operative immediately before exit day”. Clause 3(3) of the Bill further provides that direct EU legislation will be considered to be “operative immediately before exit day” if: (a) in the case of anything which comes into force at a particular time and is stated to apply from a later time, it is in force and applies immediately before exit day; (b) in the case of a decision which specifies to whom it is addressed, it has been notified to that person before exit day; and (c) in any other case, it is in force immediately before exit day. Paragraph 84 of the Explanatory Notes to the Bill comment that clause 3(3) operates to ensure that EU legislation – where it comes into application section by section, in a staggered way over time – will be converted into domestic legislation only in so far as the instrument has entered into force and applies before exit day. Where the date of application of a provision falls after exit day, the provision will not be converted into domestic law.

The FMLC states in its letter that the above approach introduces legal uncertainty on a number of fronts. Primarily it results in an increase in complexity for market participants attempting to establish which legal obligations apply to them in the sense that they need to decouple those EU legislative provisions that are operative immediately before exit day from those which are not, and then to interpret the resultant part-legislation. The FMLC also argues that the approach will result in a divergence between UK and EU legislation. It states:

“Where the UK prefers to keep in line with the direction of EU legislation – particularly in those situations where the UK wishes to and expects to attract an “equivalence” decision from the European Commission – the approach taken in clause 3 of the Withdrawal Bill will require the UK to implement separately any relevant EU provisions in direct legislation which had not come into application before exit day.  In practice, such a process may lead to considerable legal uncertainty.”

The FMLC makes similar points in respect of EU Level 2 measures, regulatory and implementing technical standards (RTS and ITS). It states:

  • where EU measures reflecting RTS and ITS are not received into domestic law via the Bill – owing to the fact that they are not in force or do not apply before exit day – the issue of legal uncertainty is thrown in sharper relief on the basis that the underlying Level 1 directives and regulations that become part of UK domestic law through the Bill may simply not function properly; and
  • legal uncertainty is amplified by the opacity surrounding the manner in which the role of the European Supervisory Authorities (ESAs) will be replicated in the UK after exit day. The FMLC states that which UK bodies will take on the mantle of the ESAs after exit day, and whether they will take up the task of drafting similar standards, and with what resources, is “far from clear”.

The FMLC recommends that careful thought is given to the mechanics and operation of clause 3 of the Bill. It suggests that one solution might be to adjust the wording of clause 3(3) so that direct EU legislation which has come into force before exit day (even if it is not yet applicable) will be considered “operative immediately before exit day” and incorporated into UK domestic law. The inclusion could be subject to the caveat that such direct EU legislation will only apply domestically from the time at which it would have otherwise applied under the EU timetable.

The FMLC also suggest that the UK Government clarifies which UK bodies will take on the role of the ESAs.

View Letter to Ministry of Justice following their email seeking comments on the European Union (Withdrawal) Bill 2017, 31 August 2017