HM Treasury has published a draft regulation outlining UK regulators’ plans to smooth the transition for inbound passporting firms in the event of a ‘no deal’ Brexit.
The draft regulation outlines a temporary permissions regime that will enable EEA financial services firms operating in the UK via a passport to continue their UK operations for a limited period in the event of a ‘no deal’ Brexit.
The temporary permissions regime is designed to mitigate the ‘cliff-edge’ effects of a ‘no deal’ Brexit, and would only be introduced if made necessary as a result of the UK and the EU failing to reach a post-Brexit agreement for financial services.
Under the agreement, EEA firms will be allowed to continue to operate in the UK for a limited period after the UK has left the EU in the event that there is no formal transitional period for Brexit, but will have to seek authorisation to operate in the UK whilst the temporary regime is in place. EEA firms will need to notify the relevant UK regulator that they intend to use the temporary scheme.
A crucial detail is that the plan does not provide similar relief for UK firms passporting outwards into the EEA.
The draft regulation does not cover EEA payment institutions and electronic money issuers, or EEA-domiciled UCITS schemes and alternative investment funds. HM Treasury is currently formulating plans to provide for similar transitional regimes for such firms under separate pieces of legislation.
It also indicates that the regime would be put in place for a three-year period beginning when the UK leaves the EU, and that HMT will have the power to extend the regime by up to one year at a time.
The FCA and the PRA will consult later this year to discuss the detail of the regime for relevant firms, including which rules will likely apply to firms that are using the temporary permissions regime, and the level of fees to be paid by firms during the regime.
Whilst this development may provide a morsel of reassurance for the UK financial services industry, little time remains before the UK officially leaves the EU and there are serious questions that still need to be answered relating to what the post-Brexit regulatory landscape will look like.
For more information on how Brexit may impact the UK financial services industry, and additional analysis relating to financial regulation, visit our publications website RegTech FS.