Shearman & Sterling LLP | Financial Regulatory Developments Focus | "Dear CEO" Letter From UK Prudential Regulator Updates PRA-Regulated Firms on Brexit
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  • "Dear CEO" Letter From UK Prudential Regulator Updates PRA-Regulated Firms on Brexit
    The U.K. Prudential Regulation Authority has published a "Dear CEO" letter that it has sent to the Chief Executive Officers of all firms authorized and regulated by the PRA, as well as EEA firms undertaking cross-border activities into the U.K. from the rest of the European Union by means of a single market passport.

    The letter refers to the publication, on October 25, 2018, of a package of consultations and other communications by the Bank of England that provide more detail on the planned Brexit-related changes to PRA rules and to the onshored Binding Technical Standards within the remit of the PRA and the BOE in their various capacities. The letter builds on the communications released by the government and U.K. regulators in June 2018 on their overall approach to onshoring financial services legislation under the EU (Withdrawal) Act 2018.

    The PRA stresses that its position remains that, in all but a few areas, U.K.-regulated firms do not need to take action now to implement, before exit day, Brexit-related changes in U.K. law. Certain limited exceptions to this are set out in the package of communications. The PRA explains that planned changes to U.K. law will take effect at the end of any transitional, or "implementation," period agreed under the U.K.-EU Withdrawal Agreement. In a "no-deal" scenario in which the U.K. exits the EU on March 29, 2019 without a ratified Withdrawal Agreement, and consequently no transitional period, the Brexit-related changes in U.K. law would take effect on exit day. However, the practical implications for firms would be mitigated by the fact that the government proposes to empower the U.K. regulators to grant transitional relief to ensure that firms have sufficient time to comply with the changes.  

    The letter provides an update on the Parliamentary scrutiny of the secondary legislation that will establish the Temporary Permissions Regime that would come into operation in the event of a "no deal" scenario. The TPR will enable EEA firms undertaking cross-border activities into the U.K. via a single market passport to continue to operate in the U.K. for a limited period after exit, to provide them time to seek PRA authorization. The letter invites affected firms to review the package of communications including BoE guidance setting out further information on: (i) entry and exit from the regime; (ii) the process firms should follow for notifying the PRA of their intention to make use of the TPR; (iii) applicable rules during the regime;  and (iv) transitional relief for some rules.

    The Financial Conduct Authority has also recently consulted separately on the TPR as it applies to FCA-regulated firms and investment funds.

    View the "Dear CEO" letter.

    View details of the package of communications published on October 25, 2018.

    View the BoE Guidance on the Temporary Permissions Regime.

    View details of the proposed temporary transitional powers for U.K. regulators.

    View details of the legislation establishing the TPR.

    View details of the FCA consultation on the TPR.

    View an overview of the government's and regulators' approach to onshoring EU financial services legislation.

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