The FCA and EU regulators have signed memoranda of understanding to reduce problems if the UK quits without a deal at the end of March.

UK and European Union financial regulators have agreed to co-operate and swap information in case Britain leaves the EU without a deal – an outcome that worries some industry practitioners fearful of losing market access. The UK also set out how financial services will handle a no-deal scenario.

The Financial Conduct Authority has agreed memoranda of understanding with the European Securities and Markets Authority, as well as other EU regulators, to exchange information and co-operate in the event of a “no-deal” Brexit. 

Unless legislators agree on a delay, the UK is due to leave the EU on 29 March. Prime Minister Theresa May is battling to get a withdrawal package proposal accepted by MPs. They decisively rejected her first version more than a fortnight ago. 

At stake is whether the UK leaves in a way that creates a so-called “hard border” between Northern Ireland (part of the UK) and the Republic of Ireland (a separate EU state) or not. Critics of proposals to keep the UK in a customs union say it would effectively treat Northern Ireland as distinct from the rest of the UK, which is constitutionally unacceptable. They also fear that a “Brexit in name only” deal – as some of branded the May plan - makes it difficult for the UK to agree new trade deals with non-EU states, and free itself from EU regulations on domestic-only UK matters, some of the very reasons Brexit campaigners gave for leaving in the first place.

The financial services sector is working – sometimes with little media fanfare – to ready itself for a possible no-deal Brexit, this publication understands. At a recent debate and seminar in London, for example, fund management firm SGG set out options for groups such as alternative fund managers in the event of no deal. 

The FCA said that the agreements with other regulators was an important step to calm nerves.  

“I am pleased we have been able to agree these MoUs. They will allow for continued close cooperation in the event the UK leaves the EU without an agreement,” Andrew Bailey, FCA chief executive, said in a statement last Friday. 

“They should also minimise the potential for disruption, which we know is particularly important for the investment management sector, credit rating agencies and trade repositories,” he said. 

Under EU legislation fund managers can delegate portfolio management services to a third party in another country, including countries outside the EU. In relation to funds and managers authorised under the relevant EU legislation, there must be cooperation agreements between the supervisory authorities in the relevant EU member state and the non-EU country concerned.

“This is a very important step that EFAMA [European Fund And Asset Management Association] has been calling for many months, as It will help avoid disruptions in the provision of asset management activities. Ensuring that delegation continues to be authorised as it is today is of paramount importance to the asset management industry. It brings comfort to the industry in their Brexit contingency planning but, most importantly, it ensures that EU investors will continue to access world leading expertise in the management of their savings. We are now calling on the EU 27 NCAs to swiftly conclude bilateral MoUs with the UK FCA on the basis of the model MoU negotiated by ESMA,” EFAMA’s director-general Tanguy van de Werve said.

Temporary transition
The FCA yesterday also set out how it would use the “temporary transitional power” if there is no deal. The UK Treasury has put forward draft legislation that would make transitional provisions in case of no deal. “This is intended to minimise the disruption for firms and other regulated entities in this scenario,” the regulator said.

“The temporary transitional power would give the FCA the ability to delay or phase in changes to regulatory requirements made under the EU (Withdrawal) Act 2018 (the legislation that has enabled the 'onshoring' of EU legislation and rules into the UK rulebook) for a maximum of two years from exit,” it said. 

“The FCA intends to make use of this power to ensure that firms and other regulated persons can generally continue to comply with their regulatory obligations as they did before exit. This will enable firms to adjust to post-exit requirements in an orderly way,” it added.