On 15 October 2020, HM Treasury issued a statement that provides an update on the financial services statutory instruments made under the European Union (Withdrawal) Act 2018 (the 2018 Act) and the European Union (Withdrawal Agreement) Act 2020 (the 2020 Act).
The statement explains that HM Treasury will bring forward further secondary legislation under the 2020 Act to update references to exit day and other dates within the substantive provisions of financial services related EU Exit instruments, to ensure that they operate as intended from the end of the transition period. HM Treasury intends to amend references to “exit day” in substantive provisions within the EU Exit instruments to instead read “IP completion day”, unless there is a reason for not making this amendment.
The statement adds that the legislation will also shift the application of the temporary transitional power, such that it is available for use by the UK regulators for a period of two years from the end of the transition period.
The statement notes that within previous HM Treasury EU Exit instruments, there are a number of references to specific dates and in the vast majority of cases these references relate to specific dates within the underlying EU regulations that will be retained at the end of the transition period by virtue of the 2018 and 2020 Act. However, there are some exceptions to this and further secondary legislation has been brought forward to make the following amendments:
- In the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2019, HM Treasury established a temporary intragroup exemption from clearing and margin requirements for over-the-counter derivative transactions. This meant that any existing intragroup exemptions between UK firms and both their EU and third country group entities (where no equivalence has been granted) before exit, could continue in the case of a no-deal exit. The UK’s temporary intragroup exemption regime is being amended to come into force at the end of the transition period. However, in relation to the clearing obligation, the EU’s derogation from the need to have EMIR Article 13 equivalence expires on 21 December 2020 which, if not extended, means those who were exempt in the EU regime will not be captured by the UK regime. HM Treasury has therefore made an amendment in the Securities Financing Transactions, Securitisation and Miscellaneous Amendments (EU Exit) Regulations 2020, laid before Parliament (on 15 October 2020), to ensure that all UK firms who are currently benefitting from an intragroup exemption from the clearing obligation pursuant to the EU derogation on or after 21 December 2020 will also automatically have an exemption in the UK’s temporary regime, as was the original policy intention.
- For intragroup exemptions from margin requirements, the EU’s derogation expired on 4 January 2020 and was never formally extended. Therefore, UK firms, with intragroup transactions with non-EU group entities where no equivalence has been granted, will need to notify the FCA in order for exemptions from the previous EU regime to continue under the UK’s temporary regime. The FCA will set out further details on the notification process in due course. HM Treasury expects the process to be streamlined in order to minimise the burden on firms transitioning from the EU to the UK regime, and there is a strong expectation of an identical outcome for all firms impacted by this process.
- Certain cross-references in previous EU Exit instruments will need to be updated. For example, where there are cross-references to EU regulations as they stood from when a particular EU Exit instrument was made, HM Treasury will, where appropriate, update these references to instead refer to the version of the EU regulation as it forms part of retained EU law (which comes into existence at the end of the transition period under the 2018 Act). This will ensure that, when HM Treasury’s EU Exit instruments come into force at the end of the transition period, they will not refer to outdated versions of underlying EU regulations
HM Treasury has also made further statutory instruments to ensure that the retained EU law operates effectively after the transition period. These statutory instruments are the:
- Bank Recovery and Resolution (Amendment) (EU Exit) Regulations 2020.
- Financial Holding Companies (Approval etc.) and Capital Requirements (Capital Buffers and Macro-Prudential Measures (Amendment) (EU Exit) Regulations 2020.