The UK's Financial Conduct Authority has published updated rules that will apply when the Brexit transition period ends on 31 December, with waivers in many cases until March 2022.
In an update to its regulatory handbook, the FCA confirmed that it would use its previously announced Temporary Transitional Power (TTP), to grant regulated firms time-limited exemptions from onshored legislation in order to smooth their journey after Brexit. Onshoring is the process of ‘domesticating’ EU legislation and regulatory requirements so that they work in a UK-only context.
These powers will remain in force until the end of March 2022, during which time firms can continue to comply with their existing EU requirements and get ready to follow the new UK-only rules.
“This means firms and other regulated persons do not generally need to prepare now to meet the changes to their UK regulatory obligations brought about by onshoring [EU measures],” the FCA said.
It added that it expects firms to use the duration of the TTP period to prepare for full compliance with the onshored UK regime by 31 March 2022.
"We are approaching the end of the transition period, so firms should be completing their final preparations. To help firms to prepare and provide clarity, we have published a version of our Handbook that will apply from the end of this year, which includes the changes made through the onshoring process," said Nausicaa Delfas, executive director of international at the FCA.
"We have also set out further details on the Temporary Transitional Power. The power will in most cases give firms more time to adapt to their new obligations," she added.
While the FCA will apply TTP broadly, it reiterated that it would not be appropriate to grant transitional relief in certain key areas after December. These include reporting obligations, certain Market Abuse Regulation requirements, Client Assets Sourcebook requirements, and other areas including issuer rules, contractual recognition of bail-in terms, credit ratings and short selling.
"There are some areas where it would not be appropriate for us to apply the TTP, including where doing so could run counter to our objectives," Delfas said. "In those key areas, we continue to expect firms and other regulated entities to prepare now to comply with the changes to their regulatory obligations by 31 December 2020."
Many financial groups welcomed the flexibility. “The regulator acknowledges the scale, complexity and magnitude of some of the changes in relation to key requirements, reiterating its intention to act proportionately towards firms,” said Conor Lawlor, director, Brexit at UK Finance.
The FCA said it does not intend to take enforcement action against firms for not meeting all requirements straight away, where there is evidence that they have taken reasonable steps to prepare to meet the new obligations by 31 December.
In addition to the TTP, existing transitional provisions and regimes such as the Temporary Permissions Regime (TPR) will operate from the end of the transition period. The TPR aims to minimise disruption for EU firms by allowing them to continue to operate in the UK during a limited period of time – three years – while they seek to obtain permanent authorisation or recognition from UK regulators.
The FCA expects firms and other regulated persons to be preparing to comply with changed obligations ready for 31 December 2020 in the following key areas:
- MiFID II transaction reporting requirements
- EMIR reporting obligations
- SFTR reporting obligations
- Certain requirements under MAR
- Issuer rules
- Contractual recognition of bail-in
- Client Assets Specialist Sourcebook rules (CASS)
- Market-making exemption under the Short Selling Regulation
- Use of credit ratings for regulatory purposes
- Electronic commerce EEA firms
- Mortgage lending after the transition period against land in the EEA
- Payment Services – strong customer authentication and secure communication