Financial Services Regulatory Insights - Brexit

26 June 2020 The Government charts a new regulatory course for financial services in the UK For some time now the UK Government and regulators have been making the point that after Brexit the UK would do things differently when it comes to financial services regulation. In this blog, Conor MacManus discusses a new regulatory course for financial services in the UK.

19 December 2019 A clearer path on Brexit, but what next for financial services? The Conservative Party’s resounding victory in the general election means the EU Withdrawal Agreement is now almost certain to be passed in the House of Commons, with the UK leaving the EU on 31 January 2020. The impact of the UK leaving the EU without a deal in January would have been damaging for the financial services sector, despite the huge amount of work that has gone into preparing since June 2016.

10 October 2019 EU-Swiss share trading equivalence: a no-deal Brexit test case? It has now been three months since Switzerland lost equivalence under the Markets in Financial Instruments Regulation (MiFIR). What could have seemed liked a technical development, the expiry of a provision in EU law giving EU traders permission to trade in Switzerland, had become a political hot potato. In equity markets, which are all about increasing efficiencies, integrating markets and finding the best prices, such disruption was a big deal. The fact that parallels have been drawn with Brexit didn’t help to keep it quiet either.

05 September 2019 MiFIR trading obligations: Is Brexit contingency planning over ? With the prospect of a no-deal Brexit occuring on 31 October, the financial services industry continues to call on regulators to take further action to avoid a fragmentation of financial markets. The European Commission (EC) has repeatedly said that its planning for no-deal has concluded. For financial services, they proposed two measures: guaranteeing access for twelve months to UK central counterparties and providing relief from margin and clearing requirements for contracts transferred from the UK to the continent.

16 August 2019 Regulatory challenges for banks in a no deal Brexit scenario With the Brexit negotiations currently deadlocked and no clear route towards an agreement between the UK and EU-27, the chances of a no deal Brexit are higher now than they have ever been. Banks should ramp up their planning to meet changing regulatory requirements in both the UK and EU in the event of a no deal scenario.

14 August 2019 Evolution or Revolution? HMT fires the starting gun on its review of the UK’s future regulatory framework Whatever the UK’s relationship with the EU ends up looking like, it’s clear that the UK’s regulatory framework needs to adapt to the new reality. This is driven not just by the fact that the UK will no longer be subject to the EU’s regulatory framework (assuming the UK leaves the single market), but also because of the scale of change and disruption in financial services from technology, new players and changing demographics.

01 August 2019 Understanding the EU’s equivalence framework for FS The European Commission (EC) released its Communication document on the equivalence framework for financial services (FS) on Monday, 29 July 2019, updating an earlier Staff Working Document. It sets out the Commission’s equivalence policy priorities, and puts the EU’s recent legislative efforts into that context. It also seeks to build consistency into the assessment and the decision making processes around equivalence.

31 July 2019 Brexit financial services risk update - are we nearly there yet? With a new Boris Johnson-led government putting No Deal back on the table and a new European Commission remaining consistent in refusing to re-open the Withdrawal Agreement before 31 October, firms will be grateful that the decision to postpone Brexit earlier this year means they still have some time remaining to prepare. So how have firms used the extra time? And have Brexit risks reduced or have new ones emerged?

11 April 2019 Beyond Brexit- a new financial services regulatory framework for the UK? Since the EU referendum financial services firms, regulators and the Government have focused heavily on attempting to mitigate the risks to the sector and the wider economy from the UK leaving the EU without a deal. But the announcement in the Spring statement that the Government would set out its approach to consulting on the UK’s regulatory framework after Brexit before the summer suggests that HM Treasury (HMT) is starting to look beyond Brexit at the big question of how the UK’s financial services sector is regulated and supervised post-Brexit. So what are the major issues to decide? And how could the outcome of these consultations impact financial services firms operating in the UK?

13 March 2019 Meeting investment expectations: How Brexit could provide the catalyst for a more dynamic asset mix PwC explores the opportunities to develop innovative investment solutions and work with policymakers to drive sustainable change in UK Life & Pensions: A roadmap to succeed in a fast-changing sector. Fresh thinking is not only needed to break free from the constraints that hold back current investment strategies, but also embrace more complex, though potentially more rewarding, alternative investments.More and more of our life clients are asking “is our asset allocation still fit for purpose?”

21 February 2019 Insurance - resilience against a potential downturn A general economic slowdown has led to negative market sentiment in recent months, with equities falling and credit spreads rising. Risks of a further economic deterioration remain.One can envisage a downside scenario – not necessarily a central case - in which equities fall further, credit spreads widen, interest rates fall in response to a flight to quality, FX rates fluctuate, and property prices continue to stagnate, or fall. Inflation might also rise in the short term, in response to currency movements, and short term interest rates may exhibit particular volatility in response. Complicating matters further, it is possible that a downside scenario may reveal itself only gradually, with asset prices appearing stable for periods of time, despite being vulnerable to sell-offs.

08 February 2019 Why should EEA banks ramp up their post-Brexit regulatory planning? With Brexit now less than 50 days away, all firms are well advised to speed up their preparations for the UK’s exit from the EU. Much of the focus on the impact of Brexit on the financial services sector has been on those firms providing services from the UK into the EU-27 and what a loss of passporting will mean for them. But for those European Economic Area (EEA) banks that passport into the UK there will also be significant changes to the regulatory requirements they face. These include changes related to the Senior Managers and Certification Regime (SM&CR) and the Financial Services Compensation Scheme (FSCS), as well as a number of other regulatory reporting requirements for third-country branches

18 January 2019 Brexit: Regulatory updates The European Commission (EC) announced on 19 December 2018 a set of measures in case of a no-deal Brexit: UK Central Counterparties (CCPs) will be granted temporary equivalence under EMIR for 12 months UK Central Securities Depositories (CSDs) will be granted a temporary equivalence period of 24 months under Central Securities Depositories Regulation. The EC has also confirmed temporary 12-month measures to facilitate the novation of bilateral contracts between UK and EU-27 entities. Whilst this brings relief, a longer term arrangement such as a full equivalence decision, may be contingent on an agreement between the UK and EU on the wider future relationship. ESMA and the BoE have welcomed the announcement, with ESMA suggesting it expects to be able to conclude an agreement on information sharing by the end of January.

20 December 2018 Has Christmas come early for UK CCPs? With 100 days to Brexit and no clear route to an agreement, it is perhaps unsurprising that the European Commission (EC) announced a number of measures should there be no agreement with the UK. In October we set out some of the risks from a no deal scenario to the centrally cleared derivatives market in this blog. So it is welcome that the EC has announced that UK Central Counterparties (CCPs) will be granted temporary equivalence under EMIR for 12 months in a no deal scenario. UK Central Securities Depositories (CSDs) will be granted a temporary equivalence period of 24 months under CSDR. The EC has also confirmed temporary 12 month measures to facilitate the novation of bilateral contracts between UK and EU-27 entities.

06 December 2018 Beyond Brexit: Temporary permissions for EU-regulated branches: a CASS perspective The Financial Conduct Authority (FCA) have recently published Consultation Paper CP 18/29. This sets out a proposed ‘backstop’ authorisation regime for branches of EEA authorised firms which currently operate in the UK under ‘passported’ permissions. This regime would will apply if the UK and EU do not reach a deal and therefore agree the transition period.

28 November 2018 Brexit: Firms should reflect BoE’s proposals in ICAAPs and ILAAPs As firms prepare for Brexit, they should take into account the consultation papers published by the Bank of England (BoE) on 25 October 2018 in their ongoing internal capital adequacy assessment process (ICAAP) and internal liquidity adequacy assessment process (ILAAP) preparations.

15 November 2018 Brexit: UK and EU-27 reach draft agreement On 14 November a draft withdrawal agreement and political declaration on future relations between the UK and EU was published.

01 November 2018 Brexit – What’s the FS deal? The Times newspaper reported this morning (1 November) that “Theresa May seals Brexit deal on financial services”, a story that moved currency markets, signalling that the UK government may have reached agreement about how Britain’s most significant export industry will trade with the EU in the future.

24 October 2018 Counting on clearing There has been significant discussion on both sides of the channel on the impact of a no deal Brexit on the UK’s economy. This is unsurprising considering the EU-27 is the UK’s largest export market. But when it comes to financial services, the scale of the UK market means that this relationship is reversed. Nowhere is this more pronounced than in the area of clearing of derivative trades.

19 September 2018 Intermediate Parent Undertaking: time to prepare It’s approaching two years since the European Commission (EC) published its CRR II/ CRD V proposals. The pace of negotiations has been slow. But since the spring, negotiations have stepped up and political pressure to get an agreement by the end of 2018 is building up. This means that impacted firms should ramp up their planning for one of the most controversial aspects of the proposals: the requirement for large non-EU banking groups with two or more entities in the EU to establish an ‘Intermediate EU Parent Undertaking’ (IPU).

14 September 2018 Brexit: The Temporary Permissions Regime- what does it mean for firms? As the Brexit negotiations continue to progress slowly, financial services firms are putting contingency plans into effect for a no deal Brexit in March 2019. Recent weeks have also seen more activity from the UK Government to prepare for the possibility of no deal with the EU-27. As part of this the Government has started to publish a series of draft statutory instruments (SIs) which would provide the UK with a workable financial services regulatory framework in March 2019 should the UK and EU-27 not be able to reach an agreement.

31 August 2018 Brexit - What could improved equivalence look like? By Andrew Gray and Conor MacManus The UK Government has now confirmed that, rather than pursue a model of mutual recognition to allow market access...

20 August 2018 Brexit: regulatory developments: August 2018 By Andrew Gray and Conor MacManus Brexit: regulatory developments Brexit is fundamentally affecting both UK and EU-27 financial services businesses from a regulatory and supervisory...

22 June 2018 Keeping the data flowing: The business impact of Brexit on data sharing and protection By Leigh Bates and Conor MacManus Every day, huge volumes of data, including vast amounts of personal data, flow between the UK and other EU...

23 May 2018 Brexit: regulatory developments: April-May 2018 Brexit is fundamentally affecting both UK and EU-27 financial services businesses from a regulatory and supervisory perspective. Anticipating a different relationship between the UK and EU-27 post-Brexit, regulators and other policy makers are expecting significant changes to their rules and processes. Developments are moving at a fast pace and firms need to understand the business implications as events unfold. Here, we summarise the most significant Brexit-related regulatory developments over the past month.

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