Legal Shorts 01.11.19 including FCA statement on impact of latest delay to UK’s exit from EU

FCA statement on impact of latest delay to UK’s exit from EU

On 30 October 2019, the FCA published a statement on the impact of the most recent Brexit delay.

In this statement, the FCA confirmed that there are no requirements for firms to action those contingency plans which they would have put in place in readiness for Brexit happening today, 31 October 2019.

The FCA has also confirmed that they it will extend its deadline for notifications to enter the temporary permissions regime (TPR) to 30 January 2020, with fund managers being given until 15 January 2020 to inform the FCA about any changes they wish to make to their existing notification.

The FCA has confirmed that in the interim, firms should continue to comply with all existing regulatory requirements, noting that this include MiFID transaction reporting and EMIR trade reporting requirements with firms reporting as normal.

The TPR will come into force when the UK leaves the EU, if there is no transition period.

Markets in Financial Instruments Exemptions Directions 2019 published

On 28 October 2019, the Markets in Financial Instruments Exemption Directions 2019 (Directions) were published on The Directions, which have been laid before Parliament and come into force on exit day, have been made by HM Treasury in exercise of the power conferred by regulation 3(1)(g)(a) of the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541) (Regulations). Under these powers, for a period lasting until twelve months after exit day, HM Treasury can make equivalence directions and exemption directions for the EU and EEA member states.

The Directions provide that, for the purposes of the Markets in Financial Instruments Regulation (600/2014), each of the central bank of Norway and the central bank of Ireland is a relevant organisation within the meaning of Article 6 of MiFIR and, accordingly, an organisation to which Article 7 of MiFIR applies. In a related written statement, John Glen, Economic Secretary to HM Treasury, explains that the Directions give effect to the decision taken by HM Treasury, the EU, and EFTA countries to exempt central banks of certain states, including EEA states, from certain provisions of MiFIR in the event the UK leaves the EU without a deal. They are necessary because adaptations to the EEA Agreement granting the relevant exemption are not yet operative for all affected EEA central banks. The Directions will therefore ensure that those affected EEA central banks can continue to carry on their activities in the UK without disruption at the point the UK leaves the EU.

In his statement, Mr Glen also mentions that a further exemption direction has been laid before Parliament. The Prospectus Directive and Transparency Directive Equivalence (Variation) Directions 2019 amends a previous direction made on 11 April 2019. However, this direction has not yet been published on

The Directions are available under the “more resources” tab on the webpage relating to the Regulations, together with the other exemption and equivalence directions that were made by HM Treasury under the Regulations in April 2019.

Financial Services Duty of Care Bill 2019-20 has first reading

On 29 October 2019, the Financial Services Duty of Care Bill 2019-20 had its first reading in the House of Lords. It was introduced as a private members’ bill.

If it becomes law, the Bill will:

  • amend the Financial Services and Markets Act 2000 (FSMA) by inserting a new section 137CA entitled FCA general rules: duty of care. This new section provides that the FCA’s power to make general rules includes the power to introduce a duty of care owed by authorised persons to consumers in carrying out regulated activities under FSMA. It defines “duty of care” as an obligation to exercise reasonable care and skill when providing a product or service. “Consumer” has the meaning given in section 2(3) of the Consumer Rights Act 2015; and
  • require the FCA to make rules in accordance with section 137CA that come into force no later than six months after the day on which the Act comes into force.

A date for the Bill’s second reading has yet to be scheduled. The FCA has been exploring whether it would be appropriate to introduce a new duty of care for financial services firms.

ESMA Chair speech on ESMA’s role under BMR and interest rate benchmark reform

On 29 October 2019, ESMA published a speech by Steven Maijoor, ESMA Chair, in which he considers ESMA’s role under the Benchmarks Regulation ((EU) 2016/1011) (BMR) and in relation to the global reform of interest rate benchmarks.

Points of interest in Mr Maijoor’s speech include:

  • in the coming weeks, ESMA expects to finalise, with the Monetary Authority of Singapore, a memorandum of understanding setting out co-operation arrangements relating to benchmarks, with more MoUs to follow in 2020;
  • €STR, the new euro short-term rate, has been regularly published by the ECB since 2 October 2019 and market participants are reacting very rapidly. In addition, with effect from that date, the European Money Markets Institute has published EONIA under the revised determination methodology that directly tracks €STR. Work is underway to finalise, before the end of 2019, the assessment of EMMI’s application for authorisation of EURIBOR under the BMR;
  • EMMI started the implementation of the new hybrid methodology for EURIBOR in the first half of 2019 and, in July 2019, EURIBOR was authorised under the BMR;
  • there is a clear commitment by EMMI and the public sector to sustain EURIBOR. Work will continue to ensure the panel of contributor banks is stable and representative. However, as for all benchmarks authorised under the BMR, fallback clauses for EURIBOR are needed to enable users, and their clients, to know in advance what will happen to their contracts if EURIBOR ceases to be provided. The working group on euro risk-free rates will shortly be publishing an important recommendation regarding the implementation of fallback provisions in contracts referencing EURIBOR; and

by the end of 2021, the supervision of third country administrators recognised in the EU and the supervision of EU critical benchmarks will be ESMA’s responsibility. ESMA is working to prepare itself for these new supervisory tasks and is committed to managing this transition in a smooth, timely and effective way.

OFSI monetary penalty of £146,341 for breach of financial sanctions regulations

On 28 October 2019, the Office of Financial Sanctions Implementation announced that on 9 September 2019, following ministerial review, it had issued a monetary penalty of £146,341 against Telia Carrier UK Ltd for breaches of regulations 4 and 6 of the Syria (European Union Financial Sanctions) Regulations 2012 (SI 2012/129). This penalty replaced an earlier penalty of £300,000 which was imposed by OFSI on 15 July 2019. The reduced penalty arose following Telia Carrier UK Ltd exercising its right of ministerial review under section 147 of the Policing and Crime Act 2017. During the review the company provided further clarification of the nature of the transactions which was not available to OFSI at the time the original penalty was imposed. This further information reduced the assessed value of the breaches from an estimated £480,000 to approximately £234,000.

The breach of the Regulations involved Telia Carrier UK Ltd indirectly facilitating international telephone calls to SyriaTel, an entity designated under the above regime which resulted in it making funds and economic resources available to the designated entity over an extended period.

The significant feature of this case is that OFSI provided this further information to the minister regarding the value of the breaches despite acknowledging that ministerial review will not normally provide a route to introduce new material. OFSI took this course “given the likely significant impact in this case”. Such a concession may well be useful to any other company found to have breached the Regulations where the company disputes the value of the breaches. What is not clear is exactly what is meant here by “likely significant impact”.