November 1, 2018 Preparing for Brexit
The UK Financial Conduct Authority (the ‘FCA’) is preparing for Brexit in earnest however there is a worrying lack of information for UK firms that conduct business in the European Economic Area (‘EEA’).
Brexit and your firm
All firms authorised by the FCA ought to consider Brexit and whether it will have an impact on the way a firm conducts business after 29 March 2019 (the date on which the UK will leave the EU).
The regulatory impact of Brexit on firms that conduct business solely within the UK may be minor or non-existent.
UK firms that conduct business in the EEA and EEA firms that conduct business within the UK are both likely to be impacted significantly.
Passporting allows firms regulated in an EEA state to conduct business in other EEA states without requiring multiple authorisations, i.e. the firm can rely on its home member state authorisation.
Following Brexit and the conclusion of any transitional period that may be agreed, passporting in its current form will end. This will clearly have a major impact upon the regulatory environment.
Firms authorised by the FCA that conduct all of their business within the UK will see little difference in the regulatory regime following Brexit. However, if a firm conducts any regulated activities in the EEA, i.e. if it utilises the passporting regime, then the current legal basis on which such firms operate will expire.
Worryingly, there is currently no guidance in respect of what will replace passporting or even if it will be replaced at all. In the absence of a passporting regime the straightforward but potentially economically ruinous conclusion is that firms cannot continue to conduct authorised activities in the EEA without obtaining access to the passporting regime via an EEA member state authorisation.
Beyond advising that firms analyse what activities are carried out in the EEA, the FCA’s silence on this matter is deafening.
The picture for EEA firms passporting into the UK is much clearer. A temporary permissions regime for inbound passporting EEA firms has been announced and would be introduced in the event that no implementation period is agreed between the UK and the EU.
Such a temporary permission regime will provide a backstop to allow EEA firms to continue to perform regulated activities within the UK. The regime will allow EEA firms to continue operating in the UK within the scope of their current permissions for a limited period whilst seeking full UK authorisation.
The FCA are preparing for a range of scenarios following Brexit but the hard truth is that without an agreed implementation period and a temporary permission regime for UK firms passporting into the EEA that mirrors the proposed regime for EEA firms, there is a risk of significant disruption to business. All firms can do is assess what business is conducted in the EEA and await further guidance. The clock is very much ticking.
Elemental CoSec Limited
Useful resources and links:
FCA ‘Preparing your firm for Brexit: https://www.fca.org.uk/firms/preparing-for-brexit
FCA ‘The temporary permissions regime for inbound passporting EEA firms and funds – our approach’: https://www.fca.org.uk/brexit/temporary-permissions-regime
FCA statement on EU withdrawal following the March European Council: https://www.fca.org.uk/news/statements/fca-statement-eu-withdrawal-following-march-european-council
This overview has been provided for general information only. It does not purport to be complete and should not be relied upon and advice should always be taken if you are in any doubt as to the relevant rules.