On 28 February 2019, the FCA, PRA and Bank of England (BoE) (collectively, the Regulators) published a number of policy documents following on from their Autumn 2018 consultations, on their respective approaches to a hard Brexit.
FCA: Brexit Policy Statement: Feedback on CP18/28, CP18/29, CP18/34, CP18/36 and CP19/2
The FCA has provided its response to the feedback to its five Brexit consultations in one Policy Statement (Policy Statement 19/5: Brexit Policy Statement: Feedback on CP18/28, CP18/29, CP18/34, CP18/36 and CP19/2 (PS19/5)).
Specifically, the FCA provides its responses to the feedback on the responses to its proposals to:
- amend the FCA Handbook and binding technical standards (BTS) – chapters 4, 5, 6 and 8;
- establish a temporary permissions regime – chapter 7;
- establish regulatory regimes for credit-rating agencies, trade repositories and securitisation repositories – chapter 9;
- provide guidance on its approach to EU level 3 material – chapter 10;
- provide guidance on its approach to non-Handbook guidance – chapter 10; and
- provide guidance to the use of FCA forms – chapter 10.
Importantly, the rules are in near final form. This is because not all of the relevant statutory instruments made under the European Union (Withdrawal) Act 2018 (EUWA 2018) have been finalised. The FCA therefore warns that it is possible that further changes may be made. The FCA board is expected to publish the final instruments implementing the changes to its Handbook on 28 March.
The FCA has also published two Directions (FCA Transitonal Direction and FCA Prudential Transitional Direction) relating to the use of its temporary transitional power (TTP) which is further discussed in chapter 3 of PS19/5. The Directions shall come into force on exit day, and shall apply for fifteen months until 30 June 2020 unless otherwise stated. When reading chapter 3 and the directions, firms are encouraged to consult the FCA’s earlier statement on the use of the TTP.
In relation to transaction reporting obligations (para 3.5 of PS19/5) the FCA is taking a practical approach by asking firms to undertake “reasonable steps” to comply with their obligations by exit day. Firms that are not able to comply fully with the new regime on 29 March will need to be able to back-report missing, incomplete or inaccurate transaction reports as soon as possible.
Chapter 7 on the temporary permissions regime (chapter 7 FCA PS19/5) provides some further insight including the fees that firms will need to pay should they wish to take advantage of the regime and what substituted compliance actually means. In terms of landing slots, the FCA re-confirms its intention not to invite firms to express their preference for a particular landing slot or make the details of firms’ landing slots publicly available. In terms of a firm’s application for authorisation once in the temporary permissions regime, the FCA states that it expects to determine all applications in a timely manner and not rely on the extended statutory deadline.
BoE and PRA: The Bank of England’s amendments to financial services legislation under the European Union (Withdrawal) Act 2018
The BoE and PRA have jointly published Policy Statement 5/19 (PS5/19) which contains their responses to the feedback to earlier Brexit consultation papers (PRA CP25/18, PRA CP26/18, PRA CP32/18, BoE consultation paper: ‘UK Withdrawal from the EU: The BoE’s approach to resolution statements of policy and onshored Binding Technical Standards’, and BoE consultation paper: ‘UK withdrawal from the EU: Changes to FMI rules and onshored Binding Technical Standards’). The appendices to PS15/9 contain near-final materials setting out the BoE’s final policy.
The draft instruments and directions within PS5/19 are published as near-final, and the BoE does not intend to change policy or make significant alterations to the text of the instruments as published within PS5/19. The instruments and directions have been approved for publication by the relevant BoE and PRA governance committees but they have not been formally made at this stage. The instruments and directions, when made, will enter into force on, and apply from, ‘exit day’. This is currently defined in the statute as 23.00GMT on Friday 29 March 2019 and the BoE intends to formally make the instruments and directions before this date.
PS5/19 is structured in two parts:
- Section A: Transitional directions and guidance
- chapter 1 sets out background to the BoE’s use of the temporary transitional power;
- chapter 2 sets out the BoE’s feedback to responses received on its proposed approach to the use of the temporary transitional power;
- chapter 3 sets out the implementation of the use of the temporary transitional power and next steps; and
- section A appendices: transitional directions and guidance.
- Section B: Nationalising the Acquis
- part 1 sets out feedback to PRA CP 25/18 on the BoE’s general approach to nationalising the acquis, including any cross-cutting issues raised;
- part 2 sets out feedback on PRA CP26/184 and PRA CP32/18 on changes relating to the PRA Rulebook and PRA BTS for: all PRA-regulated firms; PRA-regulated banks, building societies and designated investment firms; PRA-regulated insurers; financial conglomerates; credit unions; Financial Services Compensation Scheme protection; and firms in the temporary permissions regime and financial services contracts regime;
- part 3 sets out feedback to the consultations relating to the BoE (as resolution authority), including changes relating to BoE (as resolution authority) BTS;
- part 4 sets out feedback to the consultations relating to the BoE (as financial market infrastructure (FMI) competent authority), including changes to BoE (as FMI competent authority) BTS and FMI rules;
- part 5 sets out the BoE’s and PRA’s obligations under the EUWA 2018; and
- section B appendices: EU Exit Instruments, supervisory statements and statement of policy.
BoE and PRA: Interpretation of EU Guidelines and Recommendations: Bank of England and PRA approach after the UK’s withdrawal from the EU
The BoE and PRA have jointly issued a Statement of Policy setting out their approach to EU guidelines and recommendations in light of the UK’s withdrawal from the EU. Key takeaways from the Statement of Policy include:
- the BoE and PRA expect firms and FMIs to continue to make every effort to comply with EU Guidelines and Recommendations to the extent that they remain relevant when the UK leaves the EU;
- Appendices 1 to 3 of the Statement of Policy contain lists of EU guidelines that are currently complied with in the UK. The BoE and PRA expect firms and FMIs to continue to comply with these after exit day to the extent that they are addressed directly to firms and FMIs and remain relevant; and
- changes to existing EU guidelines and recommendations, and new EU guidelines and recommendations made by EU authorities, will not automatically apply when the UK leaves the EU. The BoE and PRA will consider their approach to such developments and other non-legislative EU material and may issue further statements in relation to them.
Non-binding BoE materials relating to FMI supervision: The BoE’s approach after the UK’s Withdrawal from the EU
The BoE has published a Supervisory Statement setting out how FMIs should interpret existing BoE supervisory materials in light of Brexit.
PRA approach to interpreting reporting and disclosure requirements and regulatory transactions forms after the UK’s withdrawal from the EU
The PRA has published Supervisory Statement 2/19 (SS2/19) setting out the approach it expects firms to take when interpreting EU-based references found in reporting and disclosure requirements and regulatory transactions forms after the UK’s withdrawal from the EU. The PRA has not made line-by-line changes to reporting or disclosure requirements, or regulatory transactions forms, as a result of the UK’s withdrawal from the EU. The PRA instead expects firms to interpret EU references in those templates and instructions in accordance with SS2/19.
At Chapter 2 of SS2/19, the PRA provides a high level table outlinning its general approach to various types of EU-based references, and a default approach to how these should be interpreted. Chapters 3 to 6 detail the PRA’s approach to more specific cases, including reporting and disclosure requirements based on the Capital Requirements Regulation.
At Chapter 6, the PRA notes that it has set out in a direction and accompanying guidance the approach it is taking to temporary transitional relief. The reporting and disclosure expectations in scope of SS2/19 should be interpreted in light of the direction and guidance.
Depositor and dormant account protection (updated)
The PRA has published Supervisory Statement 18/15: Depositor and dormant account protection (SS18/15). In SS18/15 the PRA sets out its expectations on deposit-takers with regards to the Depositor Protection rules. It is intended to be read together with the rules contained in the Depositor Protection Part of the PRA Rulebook.
Non-binding PRA materials: The PRA’s approach after the UK’s withdrawal from the EU
The PRA has published Supervisory Statement 1/19: Non-binding PRA materials: The PRA’s approach after the UK’s withdrawal from the EU (SS1/19). In SS1/19, the PRA elaborates on how firms should interpret existing non-binding PRA regulatory and supervisory materials in light of the UK’s exit from the EU. This includes the PRA’s existing approach documents, statements of policy, supervisory statements.
Near-final PRA and BoE directions using Brexit temporary transitional powers
The BoE and PRA have published near-final Directions on using temporary transitional powers under Part 7 of the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019, similar to those Directions published by the FCA. The Directions are intended to provide transitional relief, postponing the application of onshoring changes to firms’ obligations. They will deliver a standstill for firms, which will continue to be subject to pre-exit requirements from Exit day for a period of 15 months until 30 June 2020. After this period, all onshoring changes will apply. The Directions are:
We will be producing a client briefing note on these publications in due course.