Shearman & Sterling LLP | FinReg | UK Secondary Legislation Published for Post-Brexit Temporary Permissions Regime
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  • UK Secondary Legislation Published for Post-Brexit Temporary Permissions Regime
    A draft of one of several pieces of U.K. legislation has been published, that will establish a temporary permissions regime after the U.K.'s withdrawal from the EU. Temporary permission will be available for EEA firms currently operating in the U.K. under financial services passports. The draft EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018 are expected to be laid before Parliament in Autumn 2018 and to come into force mainly on the day after they are made, apart from some provisions that will apply on the day the U.K. withdraws from the EU. The draft Regulations also amend the Financial Services and Markets Act 2000 and related legislation to remove references to EEA passport rights.

    The draft Regulations have been prepared under the provisions of the EU (Withdrawal) Act 2018, which sets out an enhanced scrutiny procedure for secondary legislation used to amend certain retained EU law. This means that the draft Regulations will require the approval of both Houses of Parliament before they are made.

    The Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority have previously made clear that permanent U.K. authorization for passported activities will only be needed by the end of the transitional, or "implementation," period (March 29, 2019 to December 31, 2010) which has been agreed in principle between the U.K. and the EU, but which will need to be ratified under the Withdrawal Agreement currently under negotiation and is subject to agreements being forthcoming in other areas. The temporary permissions regime is designed to act as a backstop in the event of a "no deal" scenario, in which the implementation period is not ratified under the Withdrawal Agreement. Temporary permission would deem firms within the regime as authorized for their current activities for a maximum of three years, subject to a power for HM Treasury to extend the regime's duration by increments of 12 months.

    Firms that will be eligible for temporary permission are those authorized to carry on a regulated activity in the U.K. under an EEA passporting right, that have either applied for U.K. authorization prior to the U.K. withdrawal date or have notified the relevant U.K. regulator of their intention to continue carrying on passported activities. The temporary permissions regime will be available both for inwardly passported branches and to those with a services (cross-border) passport but no U.K. place of business. However, full authorization (after the temporary regime expires) would typically require the establishment of a place of business in order for the firm to meet the threshold conditions for authorization. The draft Regulations will temporarily extend, to up to three years, the statutory time limits imposed on the regulators to deal with authorization applications or applications to vary permissions, so that they are able to manage, in a smooth and orderly way, the volume of applications expected to be made as a result of EU withdrawal.

    HM Treasury has also laid in Parliament the separate draft secondary legislation to deliver a temporary recognition regime for non-UK CCPs. The Government has announced that it will lay legislation on the framework for settlement finality designation, which will clarify the means by which EEA CCPs, central securities depositaries and payment systems can benefit from the protections concerning immunity from certain insolvency laws and the finality of legal title that are currently afforded by EEA settlement finality designation. Further draft legislation will also be published in due course, setting out the temporary permission arrangements for EEA investment funds, payment institutions and electronic money institutions.

    The Bank of England and the FCA have separately issued statements on the draft Regulations. The regulators expect to consult, separately or in coordination with each other where appropriate, on changes to their broader rules in Autumn 2018.

    View the draft regulations and explanatory guidance.

    View the FCA statement on the temporary permissions regime.

    View the Bank of England statement on the temporary permissions regime.

    View details of the temporary recognition regime for non-UK CCPs.

    View details of the proposed framework for settlement finality designation.

    View details of the proposed approach to onshoring EU legislation.

    View details of the EU (Withdrawal) Act 2018.