Explanatory information on The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 and The Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019
Updated 9 August 2019
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1. Context
The European Union (Withdrawal) Act 2018 (EUWA) repeals the European Communities Act 1972 on the day the UK leaves the EU and converts into UK domestic law the existing body of directly applicable EU law. The purpose of the EUWA is to provide a functioning statute book on the day we leave the EU.
The EUWA also gives Ministers powers to make Statutory Instruments (SIs) to prevent, remedy or mitigate any failure of EU law to operate effectively, or any other deficiency in retained EU law. We refer to these contingency preparations for financial services legislation as ‘onshoring’.
HM Treasury is using these powers to ensure that the UK continues to have a functioning financial services regulatory regime in any scenario. This includes ensuring that the current regulatory position as regards to Gibraltar is temporarily preserved notwithstanding amendments made to financial services legislation under the EUWA.
In March 2018, at the Joint Ministerial Council with the government of Gibraltar, the UK government announced that Gibraltar’s authorised financial services firms will continue to be able to access the UK as now until 2020 in a no-deal scenario. UK firms will also continue to be able to exercise their passport rights as now in Gibraltar.
Gibraltar is a British Overseas Territory and is in the EU as part of the UK’s membership. Gibraltar applies EU law under provisions in its own European Communities Act 1972. Following the result of the EU referendum, Gibraltar will be leaving the EU in parallel with the UK. The government of Gibraltar will undertake its own contingency preparations for Gibraltar’s withdrawal from the EU including adopting a similar and reciprocal approach to the UK in its own Brexit legislation.
The UK government will work closely with the government of Gibraltar to design a long-term framework for market access beyond 2020 similarly based on shared, high standards of regulation, enforcement of this regulation, and underpinned by modern arrangements for information-sharing, transparency and regulatory co-operation.
The intention of these two SIs is to reflect the UK and Gibraltar’s new positions outside the EU, to preserve current market access and regulatory treatment to the extent possible, and to smooth the transition to this new position. The changes made in this SI would not take effect on 29 March 2019 if, as expected, we enter an implementation period.
2. Notice
This policy note is intended to provide Parliament and stakeholders with further details on our approach to onshoring financial services legislation. The drafting approach, and other technical aspects of the proposal, may change before the final instruments are laid before Parliament.
3. Policy background and purpose of the SI
3.1 What does the underlying EU regulation and UK law do?
Since Gibraltar and the UK are considered under EU law as a single member state territory, the EU passporting rights that exist between member states have no application between the UK and Gibraltar. The rights of Gibraltar and UK headquartered firms to respectively access the UK and Gibraltar on the basis of authorisation in their home jurisdiction is provided for separately in UK and Gibraltar law via a modified passport.
Specifically, market access for authorised financial services firms between the UK and Gibraltar is provided by the Financial Services and Markets Act 2000 (Gibraltar) Order 2001 (‘the Gibraltar Order 2001’). The passport for Gibraltar payment service providers (payment institutions, authorised e-money institutions and registered account information service providers) is provided for separately in domestically implemented EU legislation in the UK – the Payment Services Regulations 2017 and Electronic Money Regulations 2011.
HM Treasury is onshoring to ensure authorised financial services firms in Gibraltar will continue to be able to provide services and establish branches in the UK market after exit day on current terms.
The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 fixes deficiencies in the Gibraltar Order 2001 and related provisions on authorisations under the modified financial services passport. Deficiencies relating to payment service providers are addressed separately in The Electronic Money, Payment Services and Payment Systems (Amendment and Transitional Provisions) (EU Exit) Regulations 2018.
The Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019 aims to preserve the overall pre-exit regulatory position in relation to Gibraltar notwithstanding amendments made to other financial services legislation under the European Union (Withdrawal) Act 2018, unless specifically provided otherwise, to support market access between the UK and Gibraltar.
3.2 Deficiencies this SI remedies
The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019
This SI will make amendments to the Gibraltar Order 2001,the Financial Services and Markets Act 2000, and the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 to allow financial services firms incorporated and headquartered in the UK and Gibraltar to continue to provide services and establish branches between the UK and Gibraltar respectively. These changes are to address deficiencies in UK legislation as a result of the UK’s withdrawal from the EU.
Changes introduced by this SI include:
Deleting Provisions – references to the EEA
The SI will delete provisions relating to financial services firms in the EEA, other than Gibraltar, being able to continue their access to and between the UK and Gibraltarian markets from exit day.
Regimes applicable to EEA-based firms
The SI makes provision for Gibraltarian firms that passport into the UK. It does not make provision for EEA-based firms conducting regulated activities in the UK and Gibraltar via a financial services passport. EEA firms currently passporting into the UK, whether or not they also passport into Gibraltar, will be eligible to join the UK Temporary Permissions Regime (TPR), and if they do not do so may be eligible to run-off their business under the Financial Services Contracts Regime (FSCR). The SI provides that financial services firms incorporated and headquartered in Gibraltar will not be able to join the TPR or FSCR. This reflects the UK government’s commitment to preserve UK access for Gibraltarian firms as now.
Temporary Extension Mechanism
In line with the government’s announcement at the March 2018 JMC, the SI includes a provision to continue the existing market access framework between the UK and Gibraltar until at least the end of 2020. Since the duration of market access is contingent on the introduction of a replacement framework, the SI includes a power to extend market access by one year at a time. This will be supported by a Ministerial statement on progress towards the replacement framework between the UK government and the government of Gibraltar.
The Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019
This SI intends to ensure that the pre-exit regulatory arrangements that applied between the UK and Gibraltar are appropriately preserved when the UK leaves the EU. It will make specific amendments to EU-derived financial services legislation that applied before exit where, but for the amendments, the provisions that supported market access or regulatory cooperation would no longer apply. More generally, it will contain a savings provision, applicable to specified areas, that seeks to ensure that:
- UK firms doing business with Gibraltar firms or in connection with Gibraltar entities
- Gibraltar-based firms doing business in the UK
- Gibraltar trading venues and financial instruments admitted to trading in Gibraltar or traded on a Gibraltar trading venue
- provisions that relate to arrangements between UK and the Gibraltar regulators,
continue to be treated in UK law as they were treated before exit day.
The savings provision should be understood in the context of the UK and Gibraltar’s withdrawal from the EU, and makes specific provision to preserve rights or obligations that are dependent on a function of an EU entity where a function will, when the UK leaves the EU, instead be performed by a UK regulator or Treasury.
This SI will make provisions to maintain existing treatments for depositor and policyholder protection, and the payments regime governing euro transactions between the UK and Gibraltar, amongst other UK-Gibraltar financial services arrangements. This will include preserving enactments (including the [FSMA] (Compensation Scheme: Electing Participants) Regulations 2001) under which many types of Gibraltar firms (including credit institutions, but not all types of firms e.g. not insurers or certain fund managers) passporting into the UK are excluded from being relevant persons for the purpose of Part XV (the Financial Services Compensation Scheme) of the Financial Services and Markets Act 2000. Note that certain types of Gibraltarian firms passporting into the UK will continue to be able to elect to participate in the Financial Services Compensation Scheme in respect of “top-up” coverage.
This SI will make an amendment to the specificity of the PRA’s existing powers of intervention over incoming Gibraltarian insurers which would allow them where necessary and appropriate, to address risks of disruption that could threaten the financial stability of the UK. No changes are being made to the FCA’s powers in relation to Gibraltar-based firms.
3.3 Relevant Rulebook changes
The FCA and PRA will be updating their rulebook to reflect the amendments made through this SI, and to address any deficiencies to maintain the current financial services arrangements between the UK and Gibraltar, following the UK and Gibraltar’s exit from the EU. Further information on the PRA’s public consultation can be found here, and the FCA’s statement on its treatment of Gibraltar can be found here.
3.4 Stakeholders
These SIs affect persons regulated by the UK and Gibraltar regulators, including authorised UK and Gibraltarian insurers, insurance intermediaries, re-insurance undertakings, investment fund management firms, Collective Investment Scheme operators, Undertakings for Collective Investment in Transferable Securities management companies, Alternative Investment Fund Managers, mortgage intermediaries, mortgage providers, credit and financial institutions that have established branches or provide services in the UK and Gibraltar. It also affects businesses and consumers dealing with these firms.
The intention of these two SIs is to reflect the UK and Gibraltar’s new positions outside the EU, to preserve current market access and regulatory treatment to the extent possible, and to smooth the transition to this new position.
HM Treasury has engaged with the government of Gibraltar on contingency preparations for financial services legislation. At the JMC in January 2019, the government of Gibraltar reiterated its commitment to meeting high standards of regulation and enforcement in financial services after exit day.
4. Next steps
HM Treasury plans to lay the two statutory instruments before Parliament before exit.
5. Further information
Read the Financial Conduct Authority’s public statement on the treatment of Gibraltar.
6. Enquiries
If you have queries regarding this instrument, email FSlegislationEUWA@hmtreasury.gov.uk.