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  • UK Treasury Policy on "In Flight" EU Legislation in Preparation for a "No Deal" Brexit
    Following the introduction to Parliament on November 22, 2018 of the Financial Services (Implementation of Legislation) Bill, HM Treasury has published a Policy Note on the Bill. The Bill gives HM Treasury, in a Brexit no deal scenario, powers to implement and make amendments to a specified list of "in flight" financial services legislation. The Bill covers EU financial services legislation which is proposed or published but that is out of scope of the European Union (Withdrawal) Act 2018 because it will not be operative on or before exit day. Only legislation with an implementation date falling in the two years after exit is covered. The Bill sets out a list of the legislation that is covered, namely:
    • the settlement discipline regime under the Central Securities Depositories Regulation (Articles 6 and 7);
    • the Delegated Cash Penalties Regulation;
    • those provisions of the Prospectus Regulation that will come into force on July 21, 2019 and any secondary EU legislation adopted by the European Commission before that date;
    • the reporting obligation under the Securities Financing Transactions Regulation;
    • the proposed revisions to the EU Capital Requirements Directive, Capital Requirements Regulation and the Bank Recovery and Resolution Directive, published by the European Commission on November 23, 2016 (known as the risk reduction package);
    • the proposed CCP Recovery and Resolution Regulation published by the Commission on November 28, 2016;
    • the proposed revisions to the European Market Infrastructure Regulation and the related changes to the regulations establishing the European Supervisory Authorities on third-country CCP authorization and supervision - EMIR Refit and EMIR 2.2 - published by the Commission on June 13, 2017;
    • the proposed prudential regime for EU investment firms and related changes to CRR, CRD and the Markets in Financial Instruments Directive;
    • the proposed Directive on cross-border distribution of collective investment funds;
    • the proposed Directive on the issue of covered bonds and covered bond supervision and related changes to the CRR;
    • the proposed Regulation on the promotion of the use of SME growth markets; and
    • the proposed revisions to various EU pieces of legislation aimed at strengthening the EU's framework for preventing money laundering and terrorist financing, published by the Commission on September 12, 2018.

    The two-year restriction means that the proposed EU requirements for third-country banking groups to establish an intermediate parent undertaking (or intermediate holding company) would not be transferred into U.K. law because those provisions are only set to come into force four years after the revised EU Capital Requirements Directive enters into force. The proposed EU IPU requirements are not generally considered to reflect the U.K.'s financial services policy, in any event.

    The Policy Note explains that the Bill will ensure that, even if the U.K. leaves the EU without a deal, that the U.K.'s financial services law is kept in step with these EU developments in a timely way. Significantly, the Bill provides HM Treasury with powers to amend this EU legislation as it deems fit for the U.K.'s financial markets. This goes beyond HM Treasury's more limited powers in respect of exit day legislation under the EU Withdrawal Act 2018.

    HM Treasury's Policy Note further confirms that the EU's proposed CCP location policy would not be transferred into the U.K.'s framework because it would not improve it and it would result in global liquidity pools being cut off and increase costs for businesses.

    The scope of the Bill is limited to legislation considered relevant to U.K. financial services. For example, the Bill does not include the proposed EU Regulation establishing a framework for a market-led development of Sovereign Bond-Backed Securities, which is intended to enhance the Eurozone's Banking Union.

    The draft regulations prepared by HM Treasury using these powers will be subject to Parliament's affirmative resolution procedure.

    View the Policy Note.

    View the Bill.

    View details of the EU Withdrawal Act 2018.

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