It also intends to give legal powers to the UK regulators which will allow them to phase in any changes impacting on EU firms operating in the UK in the event of a 'no deal' Brexit scenario, according to a newly-published document. These powers mean that financial firms can proceed on the assumption that the implementation period agreed in principle between the UK and EU will run until December 2020, it said.
The Treasury intends to use its powers under the European Union (Withdrawal) Act (EUWA) to incorporate existing EU financial services legislation into UK law by way of statutory instruments, according to a newly-published document. It will do so in advance of the UK's anticipated departure from the EU on 29 March 2019 as "contingency preparations" in the event of a 'no deal' scenario, in which the UK and EU do not reach agreement on a post-Brexit implementation period.
The first statutory instruments will be used to create a new temporary permissions regime (TPR) for European Economic Area (EEA) firms wishing to continue to operate in the UK, as well as a temporary recognition regime for non-UK central counterparties, according to the document. These regimes will give firms wishing to maintain their UK business on a permanent basis "sufficient time to apply for full authorisation from UK regulators", according to the document.
More broadly, the Treasury will enact a number of statutory instruments to address "deficiencies" in the UK statute book as a result of the UK's departure from the EU, in line with the powers created by the EUWA. It also intends to delegate powers to the Financial Conduct Authority (FCA) and the Bank of England as the UK's financial services regulators, allowing them to make the required changes to EU Binding Technical Standards (BTS) incorporated in their regulatory rulebooks, and to address other rulebook deficiencies.
The Treasury said that the statutory instruments would "ensure that a workable legal regime is in operation whatever the outcome of negotiations". However, firms "should continue to plan on the assumption that an implementation period will be in place from 29 March 2019 – and, therefore, that they will be able to trade on the same terms that they do now until December 2020".
"This means that firms do not need to prepare now to implement onshoring changes in the event no deal is reached with the EU," it said.
The implementation period remains subject to final agreement between UK and EU negotiators. If agreed, the UK will continue to be treated as part of the EU's single market in financial services during this period, and will continue to implement new EU laws that come into effect.
The Treasury will begin publishing draft statutory instruments and accompanying explanatory information over the summer, "to give stakeholders an opportunity to engage and familiarise themselves with the draft provisions". It will then lay the final statutory instruments before parliament in groups, beginning in the autumn and running over the early part of next year.
In separate statements, the FCA and Bank of England said that they would consult on proposed changes to their rulebooks in the autumn, once the Treasury had published the statutory instruments relating to their regulatory remits. These changes would largely only come into force on 29 March 2019 in the event that no agreement is reached on an implementation period.
Banking expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said that the measures set out in the announcements were "sound contingency planning recognising the distinct possibility of a no-deal Brexit with no implementation period taking effect from 29 March 2019".
"It will be crucial in this scenario, however, that a time limited period of sufficient duration is permitted to occur to create temporary permissions and recognition regimes for preserving financial stability both here and in the European Union," he said. "Let's hope the political will supports this."