UK Post-Brexit EU Financial Services Legislation

Shearman & Sterling today announces its publication in its Brexit Resource Center website of the U.K. post-Brexit versions of several key pieces of EU legislation and updated versions of others.

The batch of new consolidated U.K. versions of EU legislation that will be newly available comprises:

• The EU Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs).
• The Central Securities Depositories Regulation.
• The EU’s Commission Delegated Regulation 2017/565 on the organizational requirements and operating conditions for investment firms (supplementing the Markets in Financial Instruments Directive).
• The EU’s Commission Delegated Regulation 2017/567 on definitions, transparency, portfolio compression and supervisory measures on product intervention and positions (supplementing the Markets in Financial Instruments Regulation—MiFIR).

Shearman & Sterling has previously published consolidated post-Brexit U.K. versions of the following pieces of EU legislation, all of which have been updated to take into account further onshoring developments:

• The Bank Recovery and Resolution Directive (BRRD).
• The Capital Requirements Regulation (CRR).
• The European Markets Infrastructure Regulation (EMIR).
• The Markets in Financial Instruments Regulation (MiFIR).
• The Alternative Investment Fund Managers Directive (AIFMD).
• The Undertakings for Collective Investment in Transferable Securities Directive/Undertakings for Collective Investment in Transferable Securities Regulations 2011 (UCITS).

New or updated consolidated post-Brexit versions of the following U.K. legislation are also available on the same website:

• The Data Reporting Services Regulations 2017.
• The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017.
• The Alternative Investment Fund Managers Regulations 2013
• The Banking Act 2009
• The schedules to Financial Services and Markets Act 2000 (Regulated Activities Order) 2001.
• The Financial Markets & Insolvency (Settlement Finality) Regulations 2001.
• The Financial Markets and Insolvency Regulations 1991.
• Part VII of the Companies Act 1989.

Background

The U.K. government has been publishing statutory instruments (U.K. secondary legislation) onshoring and amending EU regulations for Brexit. This is being done under the European Union (Withdrawal) Act 2018, so as to ensure a workable U.K. statute book after Brexit. This “onshoring” legislation is not intended to introduce policy changes unrelated to technically implementing the U.K.’s EU withdrawal. The purpose is to correct a limited range of deficiencies (as defined in the EU (Withdrawal) Act 2018) in the directly applicable EU Regulations that will be retained on exit and in the existing U.K. law that implements the EU Directives. However, necessarily, there are various decision points that U.K. legislators have needed to take in relation to third-country issues and relationships.

The U.K.’s onshoring legislation has been designed to adapt to all potential outcomes to the negotiations for the U.K.’s withdrawal. The statutory instruments have been specifically drafted so as to come into operation, either on exit day if there is a “no deal” scenario where the U.K. leaves the EU without a ratified withdrawal agreement. As at the time of writing, while the U.K. and EU’s negotiators have agreed in principle the technical terms of the Withdrawal Agreement,^[1] approval of those terms must be obtained from the U.K. Parliament, which is of uncertain outcome. The onshoring legislation has largely been designed for a “no deal” Brexit. However, once any deal is finalized, it is likely to take largely the same form.

Changes to Financial Services Law and Technical Standards for Brexit

The European Union (Withdrawal) Act 2018 sets out an enhanced scrutiny procedure. Secondary legislation used to amend certain retained EU law will be subject to the affirmative scrutiny procedure which requires the approval of both Houses of Parliament before it is made. Some of the onshoring legislation has been published in draft form, while other parts have been laid before Parliament already. In the financial services sector, around 54 separate statutory instruments are expected eventually to be made to implement Brexit.

In addition, HM Treasury has delegated responsibility to the Financial Conduct Authority, the Prudential Regulation Authority, the Bank of England and the Payment Systems Regulator for correcting deficiencies in the Binding Technical Standards (BTS) that supplement primary EU legislation and for maintaining them after Brexit. Amendments to such technical standards for U.K. purposes will therefore take place via regulatory rulebook changes and not by statutory instrument. In some cases, a single regulator has been designated as the responsible authority and in other cases more than one regulator has responsibility. The regulators have issued their initial consultations in line with the publication of statutory instruments.^[2] A number of draft “EU Exit” instruments have been published and made as a U.K. statutory instrument as part of these consultations and more may follow. Where multiple regulators have responsibility for onshoring the BTS, one regulator has consulted on the proposed changes, to avoid duplicative consultations. We also include links to the relevant FCA and PRA papers on our Brexit Resource Center. However, since the BTS are already presented by the regulators as a consolidated mark-up, we do not supplement those materials in our website.