It was confirmed yesterday by HM Treasury (HMT) in a statement to Parliament that it will retain the UK regulators’ “Temporary Transitional Power” (TTP), which was introduced as part of the UK Government’s no-deal contingency planning legislation, and shift its application such that it is available for use by the regulators for a period of two years from the end of the Transition Period.
HMT’s statement reminded Parliament that:
- while, in general, the same laws and rules [as apply presently in relation to financial services] will apply at the end of the Transition Period, HMT recognises it will be important, irrespective of the agreement that is reached between the EU and UK, for the regulators to have the flexibility to smooth any adjustments to the UK’s regulatory regime for financial services at the end of the Transition Period; and
- the purpose of the TTP is to allow the Bank of England (BoE), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) to phase in changes to UK regulatory requirements so that firms can adjust to the UK’s post-Transition Period regime in an orderly way, in line with the objectives already set by Parliament.
While this outcome is in line with market expectations, it is nonetheless reassuring for UK firms and other market participants to have confirmation, at a time of particular uncertainty, that the UK regulators will retain this flexibility for the medium term. There is no indication of any extension to the separate Temporary Permissions Regime (TPR) for EU financial institutions currently passported in/into the UK.
The Financial Conduct Authority (“FCA”), Bank of England (“BoE”) and Prudential Regulation Authority (“PRA”) yesterday announced measures to extend certain UK-specific Brexit transitional relief provisions for a further six months until 31 December 2020, in line with the extension of Exit Day until 31 October. This is generally in line with industry expectations and does not signal any material changes to the regulators’ policy or approach. (It should be noted that these timelines are separate from the 3-year maximum period applicable under the (separate) Temporary Permissions Regime (“TPR”), which remains unchanged in terms of overall maximum duration).
The FCA has issued a statement confirming its intention to extend the proposed duration of the directions issued under its temporary transitional power (“TTP”) to the 31 December 2020, reflecting the six-month extension of Article 50. The TTP is intended to minimise disruption for firms and other regulated entities if the UK leaves the EU without a withdrawal agreement. For those areas covered by the TTP, firms do not generally need to prepare now to meet the changes to their UK regulatory obligations that are connected to Brexit.
The FCA’s statement clarifies that other than the additional time, the FCA’s approach to the use of the TTP remains unchanged from that previously communicated. Firms are reminded, in particular, that certain obligations will not be covered by the TTP: these include some significant areas such as reporting under EMIR and the MiFID II transaction reporting regime, which will present particular challenges for EEA firms operating in the EEA under the TPR. The FCA reiterates that it expects TPR firms to use the additional time between now and the end of October to prepare to meet these obligations and confirms that it will publish further information before exit day on how firms should comply with post-exit rules.
The PRA and BoE have published a related consultation paper, which provides an update on the BoE and PRA’s approach to the TTP. The consultation also briefly explains and consults on the proposals to amend further certain regulatory requirements to take account of changes to EU law taking effect between March and October 2019. On use of the TTP, the PRA and BoE confirm, consistent with the FCA, that the proposed adjusted fixed end date for the TTP directions will be 31 December 2020, and that the overall approach to use of the TTP remains generally unchanged from the approach previously outlined by the PRA and BoE.
PRA-regulated firms within the scope of the TPR are reminded that for the most part, the TTP will not apply to obligations arising in consequence of their status change upon entering the TPR. The PRA and BoE are also consulting on proposals to fix deficiencies arising from the UK’s withdrawal from the EU and to make consequential changes in light of the extension to the Article 50 period (in order to deal with EU binding technical standards (“BTS”) entering into force between March and October 2019). The PRA does not expect material changes to be required to address this. Changes required to take account of EU laws and regulations other than BTS remain the responsibility of HM Treasury, which is separately engaged on this exercise.
Following the agreement last week between the UK and the EU to extend Article 50 until 31 October 2019 11pm GMT (see our earlier post), the FCA has now confirmed that it will extend the notification window for incoming EEA firms and fund managers to enter the UK Temporary Permission Regime (“TPR“) to the end of 30 May 2019. Fund managers that need to update their existing TPR notification as a result of the FCA’s extension should also notify the FCA that this is the case by 16 May 2019.
The UK FCA and PRA propose to implement the TPR if the UK leaves the European Union on 29 March 2019 without an implementation (or transitional) period, to ensure that EEA firms currently operating under an incoming passport (either from a UK branch or on a cross-border services basis into the UK) can continue to carry out regulated activities in the UK until they receive new direct authorisation by the UK regulators. For more information, please see our HSF briefing – UK Temporary Permissions Regime placemat