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Brexit transition: financial firms can rely on existing permissions

EU lenders and clearing houses which currently 'passport' their services into the UK should be able to rely on their existing regulatory permissions until the end of the post-Brexit transitional period, UK regulators have said.29 Mar 2018

The coordinated statements, issued by the Bank of England and the Financial Conduct Authority (FCA), are dependent on the incorporation of the 'implementation period' agreed this month by negotiators for the EU and UK into the final withdrawal agreement. They are also based on "the presumption that there will continue to be a high degree of supervisory cooperation between the UK and EU", according to the Bank of England.

In their statements to date, EU regulators have consistently warned firms not to rely on future trade agreements between the UK and EU as part of their contingency planning.

A draft withdrawal agreement, endorsed by EU leaders earlier this month, contains a transitional period running from the date of the UK's formal exit from the EU on 29 March 2019 until 31 December 2020. During this period, the UK would maintain "all the advantage and benefits" of the EU single market and customs union, but will no longer participate in EU decision-making.

In light of this agreement, UK regulators believe that it is "reasonable for firms currently carrying on regulated activities in the UK by means of passporting rights, or the EU framework for central counterparties, to plan that they will be able to continue undertaking these activities during the implementation period in much the same way as now", according to the Bank of England.

"The Bank has made clear that it would be difficult, ahead of March 2019, for all financial institutions to have completed all of the necessary steps required to mitigate the risks to the provision of financial services in the EU and the UK," it said.

Firms "may plan on the assumption that UK authorisation or recognition will only be needed by the end of the implementation period", it said.

The UK government has also committed to legislating if necessary for a 'backstop' temporary permission regime, to ensure that passporting firms can continue to operate in the UK in the event of a "sudden loss of permission" while they apply for full authorisation. The regulators intend to set out how this will operate later this year, they said.

The Bank of England has also issued supervisory statements setting out its position on the authorisation and supervision of international branches of banks and insurers, in response to its consultations of 20 December 2017.