The UK regulator has published two detailed consultation papers: one setting out proposed changes to the FCA Handbook and binding technical standards (BTS); and the other on the previously-announced temporary permissions regime for EEA firms and funds passporting into the UK. Both consultations are open until 7 December 2018.
Nausicaa Delfas, FCA executive director of international, said that the FCA was "planning to be ready for a range of scenarios", depending on the final deal between the UK and EU.
"We are publishing two consultation papers to ensure that in the event the UK leaves the EU in March 2019 without an implementation period, we have a robust regulatory regime from day one, and to ensure a smooth transition for EEA firms and funds currently passporting into the UK," she said. "This is consistent with our aim to provide certainty and confidence for firms operating in the UK."
The EU Withdrawal Act will convert existing directly applicable EU law at the point that the UK leaves the EU into UK law. The FCA's consultation proposes amendments to the EU's detailed BTS and to the FCA Handbook which are designed to ensure that they continue to function once the UK is no longer a member of the EU. The government is legislating to give UK regulators, including the FCA, responsibility for amending the BTS.
The lengthy consultation paper does not propose any immediate policy changes. Many of its changes are technical in nature, such as replacing references to the European Commission, European supervisory authorities and other EU institutions with their UK equivalents; while others are designed to reflect the UK's new position outside the EU. The paper also sets out the FCA's proposed approach to the regulation of credit rating agencies, trade repositories and data reporting services providers, whose activities are currently overseen by EU institutions.
The FCA said that it does not expect firms to prepare to implement any new requirements now. However, it is keen to receive feedback from firms on whether compliance with its proposed changes to the regulatory requirements by the date of EU exit "would be a particular challenge for firms".
The government published draft legislation in July, setting out its plans for a temporary permissions regime. This is intended to allow EU-based firms and funds to continue to serve their UK customers for a limited time after Brexit, giving them time to apply for full authorisation. No reciprocal temporary permissions regime has yet been proposed by the EU for UK firms which currently rely on 'outbound passports' to serve customers in other EU member states.
The FCA's consultation paper sets out details of how the regulator expects the regime to work in practice, how firms and investment funds can enter into it and the rules and fees that it proposes should apply to firms and investment funds while they are a part of it. It proposes that temporary permissions would last for a maximum of three years, "depending on when [the firm is] asked to submit their application for full authorisation in the UK".
Credit rating agencies, trade repositories and data reporting services providers will not be able to use the temporary permissions regime, as they do not currently 'passport' into the UK. The Treasury intends to introduce specific transitional regimes for each of these types of firm.
The idea behind the temporary permissions regime is to preserve existing arrangements between firms and their customers "as far as possible", according to the FCA. However, in some cases, firms may be required to join additional schemes to protect UK consumers, such as the Financial Services Compensation Scheme (FSCS).
Firms and funds which expect to be eligible for temporary permissions have been asked to check the status of their existing passport on the FS Register, and to check that this corresponds to the funds which they are actively marketing in the UK. They have also been asked to complete an online survey about their UK operations.
The FCA intends to provide feedback to both consultations early next year, and to publish final materials before 29 March 2019.
Financial regulation expert Elizabeth Budd of Pinsent Masons, the law firm behind Out-Law.com, said that the first consultation in particular "provides welcome clarity on the FCA's proposed approach".
"EU legislation, whether or not directly applicable, is entwined in UK legislation," she said.
"The process of on-shoring EU legislation in the UK covers numerous inter-related parts including the EU Withdrawal Act, the statutory instruments and policy statements, and this is the latest publication of legislative and regulatory development. The intention is not to change policy but simply to work through the mechanics of on-shoring and the practical changes that need to be made. There are numerous references throughout the rulebook that the regulator has had to consider," she said.
"The temporary permissions regime had already been heralded, but this consultation paper and statutory instrument help to provide certainty about how the TPR will operate. We do, however, still await an indication of the exit for funds from the TPR, which is likely to build on the existing recognition regime," she said.