4 February 2019
Brexit Update: February
Includes a joint letter from the Government of Jersey and the Jersey Financial Services Commission to the financial services industry, UK draft statutory instruments, Financial Conduct Authority updated no-deal guidance, and Bank of England and PRA Policy Statement on amendments to financial services legislation under the European Union (Withdrawal) Act.
Brexit Dear CEO Letter
On 8 February 2019, the Government of Jersey and the Jersey Financial Services Commission (JFSC) published a joint Dear CEO Letter addressed to the financial services industry. The letter seeks to draw attention to the growing need for firms to implement contingency planning for a ‘no deal Brexit’ scenario.
In the course of February 2019, the UK Government has continued to publish further final and draft statutory instruments (SIs) to make the changes to legislation required as part of Brexit, including in the event of a hard Brexit. Areas covered by some of the recent statutory instruments that have been published include:
• Retail Funds – the Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2019 were published. The Regulations are designed to ensure that the regime established under the UCITS IV Directive for investment funds and their managers continues to operate effectively after the United Kingdom’s withdrawal from the European Union. This includes amendments to the retained provisions of delegated acts made under UCITS IV and relevant UK financial services legislation such as the Financial Services and Markets Act 2000.
• Financial services – the Financial Services (Miscellaneous) (Amendment) (EU Exit) Regulations 2019, and its explanatory memorandum, as laid before Parliament, were published. This instrument amends various UK legislation and retained EU law relating to financial services, including this provisions which relate to the UK’s participation in the EEA
financial services passporting system.
• European Venture Capital Funds Regulation – the Venture Capital Funds (Amendment) (EU Exit) Regulations 2019, seek to address failures of retained EU law to operate effectively and other deficiencies arising from the withdrawal of the UK from the European Union.
• AIFMs – the Alternative Investment Fund Managers(Amendment etc.) (EU Exit) Regulations 2019 were made on 19 February 2019, to ensure that the regimes established under the latest Undertakings for the Collective Investment in Transferable Securities Directive (UCITS IV Directive) and the Alternative Investment Fund Managers Directive (AIFMD) continue to operate effectively for investment funds and their managers after Brexit.
• AML/CFT – the Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019 were made in order to address failures of retained EU law to operate effectively and other deficiencies arising from the withdrawal of the UK from the European Union.
An overview of HM Treasury’s list of financial services SIs made under the EU (Withdrawal) Act 2018 can be found here. A list of draft financial services SIs laid before Parliament and subject to the affirmative procedure is also available.
FCA updated No-Deal Brexit guidance and sector-specific information
On 26 February 2019, the Financial Conduct Authority (FCA) updated its webpage on preparing for a no-deal Brexit and published a number of sector-specific webpages. These contain guidance on banking and payment services systems, insurance, retail investments and wholesale markets.
ESMA to recognise three UK CCPs in the event of a no-deal Brexit
On 18 February 2019, the European Securities and Markets Authority (ESMA) announced that in the event of a no-deal Brexit, three central counterparties (CCPs) established in the UK – LCH Limited, ICE Clear Europe Limited and LME Clear Limited – will be recognised to provide their services in the EU. ESMA has adopted these recognition decisions in order to limit the risk of disruption in central clearing of derivatives contracts and to avoid any negative impact on the financial stability of the EU.
EU Exit: HM Treasury updated guidance on banking, insurance and other financial services
On 18 February 2019, HM Treasury published updated guidance on banking, insurance and other financial services in the event of a no-deal Brexit including: (i) information for UK residents and businesses; (ii) information for people living in the EEA; and (iii) information for financial services institutions.
EU Exit: Updated HM Treasury policy note
On 19 February 2019, HM Treasury published its updated policy note on the Financial Services (Implementation of Legislation) Bill. The updated policy note sets out the Bill’s purpose, and provides detail on the EU legislative proposals to which it would apply. The Bill provides the power, in a no-deal scenario, for the UK to implement and make changes to a specified list of ‘in-flight files’.
Bank of England and PRA Policy Statement on amendments to financial services legislation under the European Union (Withdrawal) Act
On 28 February, the Bank of England and the Prudential Regulatory Authority issued a joint statement setting out their approach in relation to amendment financial services legislation under the European Union (Withdrawal) Act 2018. This document confirms, amongst other things, the intention to provide firms with broad transitional relief with respect to changes to their regulatory obligations in the event of a no-deal Brexit.
Joint statement by UK and US authorities on continuity of derivatives trading and clearing post-Brexit
On 25 February 2019, the U.S. Commodity Futures Trading Commission (CFTC) and the Bank of England, including the Prudential Regulation Authority (BoE) and the Financial Conduct Authority (FCA) issued a statement regarding the continuity of derivatives trading and clearing activities between the UK and the US after the UK’s withdrawal from the EU.
Bundesbank speech: Brexit – implications for UK Branches of German Banks
On 14 February 2019, Prof. Dr. Joachim Wuermeling, Member of the Executive Board of the Deutsche Bundesbank, delivered a speech outlining the implications of Brexit for UK Branches of German Banks.Brexit – Implications for UK branches of German banks BundeBund
EDPB Issues Note on Data Transfers to the UK in the Event of a No-Deal Brexit
On 12 February 2019, the European Data Protection Board (EDPB) adopted an information note ‘on data transfers under the GDPR in the event of a no-deal Brexit.’ According to the note, as of 30 March 2019, transfers of personal data from the European Economic Area (EEA) to the UK must be based either on Standard or ad hoc Data Protection Clauses, Binding Corporate Rules, Codes of Conduct, Certification Mechanisms or Derogations. The information note provides detailed information on these transfer instruments. It is targeted at commercial and public organisations as the primary audience and is based on guidance notes provided by national supervisory authorities and the European Commission.
Luxembourg Proposes 21-Month Grandfathering Period in a ‘Hard Brexit’ Scenario
The Luxembourg government has proposed legislation which would allow, among other things, UK financial service providers to continue rendering certain services in Luxembourg for a period of up to 21 months after the date when the UK withdraws from the EU. This would potentially allow UK-based AIFMs or UCITS management companies to continue to directly manage their existing Luxembourg funds following a ‘hard Brexit’ during the transitional period.
Brexit and the doctrine of Frustration in English contract law
In a judgment released on 20 February 2019, the High Court in London held that Brexit would not bring to an end the European Medicines Agency’s (EMA) 25-year lease of its headquarters (HQ) in London; Brexit would not frustrate the lease, even though the UK’s decision to leave the EU has prompted the EMA (an agency of the EU) to move its HQ to Amsterdam. Instead, the EMA will have to pay the rent and perform the tenant’s covenants throughout the lease.
EIOPA recommendations for the Insurance sector in case of a Hard Brexit
On 19 February 2019, the European Insurance and Occupational Pensions Authority (EIOPA) issued recommendations for the insurance sector if the United Kingdom withdraws from the European Union without a withdrawal agreement. The Recommendations are addressed to National Competent Authorities and apply on a ‘comply or explain’ basis, with two months given to explain non-compliance.