The UK financial regulator has assured City institutions they will have 15 months from the end of the Brexit transition period to meet most of its new domestic rules — but said some extra measures will have to be complied with by January 1.
In an update to its regulatory handbook, setting out the rules that will apply when transition ends on December 31, the Financial Conduct Authority confirmed that it will use previously announced powers to give financial groups time to adapt.
These powers will remain in force until March 31 2022, during which time companies need only meet their existing EU requirements and get ready to follow the new UK-only rules.
“This means firms and other regulated persons do not generally need to prepare now to meet the changes to their UK regulatory obligations brought about by onshoring [EU measures],” the FCA said.
Banks and advisers to financial services groups welcomed the flexibility.
“The regulator . . . acknowledges the scale, complexity and magnitude of some of the changes in relation to key requirements, reiterating its intention to act proportionately towards firms,” said Conor Lawlor, the director responsible for Brexit at banking industry body UK Finance. ”
Paul Edmondson, a financial services partner with law firm CMS, said most firms needed the grace period. “The City will breathe a cautious sigh of relief,” he said. “Although essentially a short-term fix, these rules should provide firms with a degree of comfort. The FCA is being pragmatic, and with limited exceptions firms can continue to operate as they do now at the end of the transition period.”
However, the FCA reiterated that in certain “key areas”, companies would have to be ready to comply with new UK obligations by 31 December 2020. These areas include transaction reporting, share issuance, bank rescues, credit ratings and short selling — which the UK regulator had warned firms about in February 2019.
But the list has been extended to take in additional activities that must immediately come under UK rules from January, such as ecommerce and overseas mortgage lending.
Nausicaa Delfas, executive director of international at the FCA, explained that some of these extra measures reflected new EU requirements that had come in to force during the transition period.
Others related to changes to the EU rules to make them work in the UK.
“They are generally not new EU requirements, but arise from UK exit from the EU,” said one person familiar with the process. “For example, certain ecommerce firms would not need to seek authorisation in the UK if we remained in the EU, since that is a pan-EU framework”.
Law firm DLA Piper said the extra clarification on these areas would help European firms operating in the UK “This provides . . . useful detail on the FCA’s expectations of EU firms from 1 January 2021 onwards,” said partner Michael McKee.