In a statement published on Thursday morning, titled Preparing your firm for Brexit, the regulator stated it was preparing for all scenarios, including the UK leaving on 29 March 2019 with no withdrawal agreement.
British Prime Minister Theresa May told the government’s Liaison Committee on Wednesday that households and business would be sent technical notices in August and September detailing how to prepare for a no deal Brexit.
Regardless of the Brexit outcome negotiated, the FCA told firms to ensure they: have the correct regulatory permissions; communicate important information with clients; consider implications of all possible scenarios; and discuss implications with the relevant European Economic Area (EEA) regulator, trade association and/or get independent legal advice.
Passporting in its current form will end after Brexit, the statement said.
UK regulators have established a Temporary Permissions Regime, which will allow EEA firms to operate in the UK without authorisation immediately after Brexit. It states EU regulators have not yet reciprocated.
Also on Thursday, the European commission issued a 16-page document urging the remaining 27 member states, along with businesses, to step up their preparations for an outcome in which the UK would crash out of the bloc next year.
Cliff edge risks
In a speech coinciding with the publication of the statement to regulated firms, FCA executive director of international Nausicaa Delfas said insurance and derivative contracts were the most worrying “cliff edge” risks that would be caused by abrupt loss of passporting.
This would affect 10 million UK policyholders and 38 million EEA policyholders and around £26trn worth of derivative contracts, according the Financial Policy Committee.
However, Delfas said the type of contracts might be broader.
“Our view is that where any of these contracts extend beyond March 2019, the UK and the EU must, together, create contractual certainty, either through an implementation period or by some other means,” she said.
As EU legislation is converted into UK law via the EU Withdrawal Act, the FCA is identifying aspects that may need amending, such as reference to the European Supervisory Authorities, Delfas said.
This includes a line-by-line review of around 50 pieces of EU financial services legislation, and 185 Binding Technical Standards, which are the technical detail below the EU directives and regulations.
The FCA will consult on the changes in autumn so that the Handbook and associated rules are fully operation at the point of Brexit.
While there are short-term challenges associated with Brexit, Delfas said fundamentals are strong to continue to have a close relationship with the EU over the long run.
She said at day one regimes will be equivalent, but notes regulatory frameworks may evolve.
“Common outcomes should be the criteria by which we judge one another’s regulatory position, and thus the access that we are prepared to grant to one another’s markets.
“What matters more is not what road we take, but what that final destination is – and as long as the UK and the EU maintain a commitment to protecting consumers and to strong, open markets, there is no reason this cannot work in practice.”
This month’s UK government white paper proposed EU and UK firms operate under an equivalence regime.
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