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This publication is available at https://www.gov.uk/government/publications/draft-financial-services-contracts-transitional-and-saving-provision-eu-exit-regulations-2019/the-financial-services-contracts-transitional-and-saving-provision-eu-exit-regulations-2019-explanatory-information
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 SI is part of the wider work the government is undertaking to prepare for the UK’s withdrawal from the EU. It is not intended to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition. The changes made in this SI would not take effect on 29 March 2019 if, as expected, we enter an implementation period.
The draft SI is intended to provide Parliament and stakeholders with further details on our approach to onshoring financial services legislation. The draft instrument is still in development. The drafting approach, and other technical aspects of the proposal, may change before the final instrument is laid before Parliament.
HM Treasury is publishing the draft SI with these accompanying explanatory policy notes, ahead of laying in January, to provide stakeholders with further information regarding the design of these provisions.
3. Policy background and purpose of the SI
Upon exit from the EU, EEA financial services providers who hold existing EEA passporting permissions to carry out regulated activity in the UK will lose these rights. This means that where these providers do not enter the UK’s temporary permissions regimes (as set out in previously published policy notes) they may not be able to meet existing contractual obligations, as performing regulated activities in the UK without these permissions could be a criminal activity. This could lead to, for example, EEA firms lacking permissions to pay insurance claims to UK consumers. In addition, there are risks to UK firms if CCPs or TRs do not enter, or are removed from, the relevant temporary regime without the necessary permissions to continue to provide services in the UK.
This SI provides a run-off mechanism to several temporary regimes which will allow existing contracts to continue being serviced post-exit:
This will mitigate the risk of a residual cliff-edge for providers that are not captured by the above temporary regimes.
Details on the background and operation of each of these run-off regimes are set out in the accompanying annexes:
3.2 Relevant Rulebook and Binding Technical Standard changes
The FCA and PRA will be updating their rulebooks to reflect the changes introduced through this SI (among others), and to address any deficiencies as a result of the UK leaving the EU.
This SI affects EEA financial services firms that currently operate in the UK via a passport. Additionally, the UK clients and customers of these firms will have an interest. It also affects CCPs, CCP clearing members, clients, TRs, TR users, and payment service providers (including banks, payment institutions, e-money institutions, and registered Account Information Service Providers.
HM Treasury has engaged with industry bodies where possible to ensure awareness of these changes.
This SI does not include provisions that may be necessary to ensure Gibraltarian financial services firms’ continued access to UK markets in line with the UK Government’s Statement in March 2018, and other provisions dealing with Gibraltar more generally. Where necessary, provisions covering Gibraltar will be included in future SIs.
4. Next steps
HM Treasury plans to lay this instrument before Parliament before exit.
5. Further information
If you have queries regarding this instrument, email FSlegislationEUWA@hmtreasury.gov.uk.