Nausicaa Delfas, Executive Director of International, delivered a speech on 1 July 2020 at the City & Financial Professional Virtual Roundtables. Ms Delfas outlined the FCA’s preparations for the end of the Brexit transition period, the planned approach after the transition period and the impact of Covid-19.
Preparing for the end of and after the transition period
The FCA has been preparing for the end of the Brexit transition period to minimise potential disruption. This has included:
- Ensuring that there is a robust legal system in place upon expiration of the transition period, by onshoring EU law into UK statute and into the FCA rule book.
- Clarifying through use of the Temporary Transitional Power which onshoring changes firms will have to comply with from 1 January next year and which ones they will have until March 2022 to implement.
- Introducing arrangements for temporary permission that will allow EEA firms to continue providing services and EEA funds to continue to be marketed in the UK once passporting ends, provided that the relevant notifications are made. The notification window will be re-opened on 30 September 2020;
- Firms who do not notify for temporary permission or obtain permanent authorisation will be allowed to continue to service pre-existing contracts in the UK;
- Entering into several MoUs with EU and non-EU authorities to enhance supervisory cooperation; and
- Providing technical advice to the Treasury on the assessments of equivalence between the UK and the EU and providing technical support to the UK Government in its trade negotiations with the EU and non-EU countries.
The speech highlighted some post-transition risks, some of which are outside of the FCA’s control to mitigate, such as how a number of laws passed by EU Member States have now expired and there is no guarantee they will be issued. Given this, if you intend to continue servicing customers in the EEA from 1 January 2021, you will need to have adapted your business according to the local laws and local regulators’ expectations by that date, speaking to local regulators as appropriate, and obtaining permissions and repapering contracts where necessary, whilst treating customers fairly throughout.
In relation to what financial services regulation will look after the transition period, the FCA published a Discussion Paper regarding the UK’s approach to the investment firms’ prudential regime and there are strong cooperation arrangements in place to support open markets. The FCA is also providing technical advice and support to the Government as it looks at future trade opportunities and is continuing its programme of international engagement.
The impact of Covid-19 and other challenges
Following the initial onset of the crisis, the FCA is now focusing on the conduct and resilience of markets in the medium and long term. The FCA will be reviewing what happened early in the pandemic and how all elements of the financial system interconnected and function under extreme stress. The Government has granted the FCA enhanced powers to help manage and direct an orderly wind-down of critical benchmarks such as LIBOR, in particular with regard to ‘tough legacy’ contracts and will be consulting with the PRA through October 2020 on new requirements to strengthen operational resilience in financial services. The coronavirus crisis has also highlighted the importance of technology and to ensure that the regulatory framework keeps pace with digital innovation, the FCA’s Digital Sandbox will be open for applications this summer. In relation to sustainable finance and moving towards a ‘green recovery’, the FCA’s focus is on well-functioning markets, including clear disclosure, and internationally it is co-leading the work on climate-related financial disclosures at an IOSCO Task Force.
How can we help?
At Laven, our consultants are on hand to help identify the actions your firm needs to take to ensure you are compliant and aware of all the risks outlined in this update. Whether this is through assisting with new policies and procedures that need to be put in place or providing online training for staff to make them fully aware of the regulatory burden.
Laven has also built Laven Tech software solution that leverages advanced technology combined with our vast subject matter expertise. Laven Tech is designed to assist fund managers, service providers and investors to meet today’s growing demands.
