Legal Shorts 29.03.19 including FCA identifies residual risks remaining in event of no-deal Brexit

FCA identifies residual risks remaining in event of no-deal Brexit

On 21 March 2019, the FCA published a speech given by Nausicaa Delfas, FCA Executive Director of International, on Brexit. Among other things, in her speech, Ms Delfas explained that all of the FCA’s activity has been aimed at reducing the impact of Brexit on firms. It has been focused on mitigating cliff-edge risks. Most of the risks to UK financial stability that could arise from a no-deal Brexit have been mitigated. However, Ms Delfas explained that some residual risks remain, which could affect households and businesses both in the UK and the EU, namely:

  • UK and global banks are transferring activities to EU-incorporated entities, but are to some extent dependent on their clients agreeing to move contracts to these new entities. The FCA is aware that there is varying progress with this;
  • the process of migrating businesses, assets and contracts in a short period could pose operational risks;
  • regarding contract certainty, the EU does not have a pan-EU equivalent to the UK’s temporary permissions regime (TPR) and financial services contracts regime (FSCR). Some member states are taking action, and firms are taking their own action. There are likely to be some areas where the legal risks relating to the ongoing servicing of existing customers have not been fully mitigated. Firms are encouraged to take the steps they can to act lawfully and consistently with local regulators’ expectations. Their decisions should also be guided by what is the right consumer outcome;
  • there are implications of a lack of equivalence in certain areas. For example, the EU’s trading obligations for shares and derivatives will require EU firms to trade these instruments on EU or equivalent trading venues. In the absence of equivalence, ESMA has published its expectations for the scope of the EU’s share trading obligations. The FCA believes that this will create issues of conflicting obligations applying to the same instruments. Where this is the case, firms may be limited to trading certain shares only in either the UK or EU. In some cases, they may be caught by overlapping obligations. This has the potential to cause disruption to market participants and issuers of shares based both in the UK and EU, in terms of access to liquidity.

If risks materialise, the FCA will continue to take a pragmatic and practical approach to resolving issues. Firms are encouraged to raise any concerns or issues as early as possible.

You can access a copy of the whole speech here:

PRA and FCA agree Memorandum of Understanding (MoU) with EBA 

On 20 March 2019, the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA) and European Banking Authority (EBA) confirmed that they have agreed a template Memorandum of Understanding (MoU). The template sets out the expectations for supervisory cooperation and information-sharing arrangements between UK and EU/EEA national authorities.

Following agreement on the template, the UK authorities and EU/EEA national authorities intend to move swiftly to sign bilateral MoUs. These bilateral MoUs will allow uninterrupted information-sharing and supervisory cooperation in the event of a no-deal scenario. Sam Woods, Deputy Governor and Chief Executive of the PRA commented:

“I am pleased that we have agreed a template which will form the basis of bilateral MoUs with the national authorities in EU member states.  These agreements will ensure our continued cooperation in carrying out our supervisory responsibilities. We have enjoyed a strong working relationship with our European partners for many years and I am confident that this will continue.”

Andrew Bailey, Chief Executive of the FCA, commented:

“The bilateral MoUs will ensure that there will be no interruption in exchange of supervisory information in the event of a no-deal exit from the EU.  It sends a clear signal of the determination of the UK and EU authorities to work together. The MoUs build on years of continued working, and will ensure these can carry on if they UK leaves the EU without an agreement.  We are encouraged by the approach of the EBA on this vitally important matter.”   

The MoUs will only take effect in the event of a no-deal scenario.

FCA to introduce UK Benchmarks Register

The FCA continues to plan for a range of outcomes in relation to Brexit, including the UK leaving the EU without an implementation period. To prepare for this scenario, the FCA has developed a new UK Benchmarks Register. The new Register will replace the ESMA Register for UK supervised users, and UK and third-country based benchmark administrators that want their benchmarks to be used in the UK.

The new UK Benchmarks Register will include benchmark administrators and third-country benchmarks.

The Benchmarks Administrators Register is a public record of all benchmark administrators that are:

  • authorised, registered or recognised by the FCA; 
  • outside the UK and have notified the FCA that they benefit from an equivalence decision that has been adopted by the UK; and 
  • copied from the ESMA register as set out in the Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019.

The Third-country Benchmarks Register is a public record of all benchmarks that are:

  • provided by third country benchmarks administrators recognised by the FCA;
  • endorsed by a UK authorised or registered benchmarks administrator, or other supervised entity, for use in the UK;
  • provided by benchmarks administrators from outside the UK, that have notified the FCA that they benefit from an equivalence decision that has been adopted by the UK; and
  • copied from the ESMA register as set out in the Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019.

On Exit day, the FCA has confirmed that it will temporarily copy information from the ESMA register onto the UK Benchmarks Register. This information will stay on the UK Benchmarks Register for a period of 2 years unless it is subsequently removed pursuant to and in accordance with the UK Benchmarks Regulation.

FCA final report on review of retained CCA provisions

On 25 March 2019, the FCA published its final report following its review of the retained provisions of the Consumer Credit Act 1974 (CCA). The FCA took over responsibility for regulating consumer credit in April 2014. As part of the transfer, Parliament repealed some CCA provisions and some were replaced by FCA rules. The FCA was required to undertake a review of the remaining provisions. It published an interim report (DP18/7) in August 2018, setting out its initial views and inviting comments.  The review had to consider which CCA provisions could be replaced by FCA rules or guidance under the Financial Services and Markets Act 2000 (FSMA), against the principle that a burden or restriction that is imposed in relation to the carrying on of an activity should be proportionate to the benefits. 

The FCA carried out its review by identifying three themes. Its key findings include the following:

  • Rights and protections. This theme includes credit brokerage fees, connected lender liability, variation of agreements, default and enforcement, credit-tokens, pawnbroking, withdrawal and cancellation, early repayment, termination, time orders and unfair relationships. The FCA’s view remains that (i) the protections offered by the provisions continue to be important, and should be retained in some form; and (ii) most provisions in this theme could not be repealed without adversely affecting the appropriate degree of consumer protection. This is because it would not be possible to replicate the same level of protection under the FCA’s current rule-making powers. As such, the FCA sees merit in keeping the provisions in the CCA or other legislation.
  • Information requirements. Information requirements include pre-contract disclosure, the form and content of agreements and the provision of copy documents. The FCA’s overall view remains that it sees merit in repealing the relevant information requirements, with a view to their replacement by FCA rules, but only if this does not result in the loss of corresponding sanctions. 
  • The FCA’s view remains that the “self-policing” nature of the sanctions of unenforceability and disentitlement to interest and default sums contributes significantly to ensuring key customer information needs are met. In the context of consumer credit markets, the FCA thinks a combination of the CCA sanctions, the FCA’s regulatory powers and the private right of action under FSMA is appropriate. It considers that the provisions giving rise to unenforceability and disentitlement could not be repealed without adversely affecting the appropriate degree of consumer protection. As such, its view is that there is merit in retaining the sanctions in the CCA or other legislation, subject to reviewing the scope of their application.

The final report does not include formal recommendations to HM Treasury, but provides analysis and evidence to enable decisions to be made. The final decisions about the future of CCA provisions will fall to the government. 

Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 (corporate aspects): Brexit SI

On 22 March 2019, the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 (SI 2019/632) were published on, together with an  explanatory memorandum.

The purpose of the Regulations is to amend the Financial Services and Markets Act 2000 (FSMA) and related legislation to ensure that they continue to operate effectively in the UK once the UK has left the EU. The Regulations also contain transitional powers for the FCA, the PRA and the Bank of England (BoE) to allow them to delay or phase in regulatory requirements that change or apply for the first time because of Brexit.

The Regulations come into force on exit day, with the exception of certain provisions specified in regulation 1 (including those relating to transitional powers) that came into force on 23 March 2019 (that is, on the day after the day on which they were made)..