This CP is relevant to all firms authorised and regulated by the Prudential Regulation Authority (PRA), as well as financial market infrastructure providers (FMIs) that are currently supervised by the Bank. Some of the proposals are also relevant to firms authorised and regulated by the Financial Conduct Authority (FCA), and to the Financial Services Compensation Scheme (FSCS). The consultation is also relevant to firms that might seek to apply to the PRA or FCA for authorisation, and to FMIs that might apply to the Bank for recognition.
The UK’s withdrawal from the EU requires changes to be made to UK legislation to ensure that it remains functional. The European Union (Withdrawal) Act 2018 (the ‘Act’) converts directly applicable EU law (eg EU Regulations) into UK law and preserves domestic law that relates to EU membership (including domestic law that was introduced to implement EU Directives). This body of law is referred to as ‘retained EU law’. The Act also confers powers on Government ministers to make changes to the law so that it continues to operate effectively after the UK’s withdrawal from the EU – this is often referred to as ‘onshoring’, or ‘Nationalising the Acquis’ (NtA). Government is responsible for making amendments to retained EU law that relates to financial services, and will lay statutory instruments (SIs) to propose those changes. HM Treasury proposes to delegate powers under the Act to the Bank and PRA to make amendments to their existing rules as well as onshored Binding Technical Standards (BTS) relevant to their remits (the ‘delegated power’). Changes to rules and BTS using the delegated power will be made by legal instruments called EU Exit Instruments. As part of this, the Bank and PRA have published a package of consultations which set out proposals to make changes to relevant onshored BTS, rules for FMIs, and the PRA Rulebook.
The proposed changes are to ensure that there is a functioning legal framework for UK financial regulation when the UK leaves the EU. They do not reflect any change in Bank or PRA policy, except to reflect the UK’s withdrawal from the EU. The Bank proposes to follow the general approach to onshoring adopted by Government under the Act. In particular, Government has indicated that its general approach is that, in the scenario that the UK leaves the EU without a deal, the UK would default to treating the EU and its Member States in the same way as other ‘third countries’. Exceptions would be made to that default approach where appropriate – including where this is justified in order to ensure financial stability, or to minimise disruption and avoid material unintended consequences for the continuity of service provision to UK customers, investors and the market.
The changes would only take effect on 11:00pm Friday 29 March 2019 (‘exit day’) in the event that there is no Implementation Period agreed between the UK and the EU as part of an agreement on the withdrawal of the UK from the EU.
If there is an Implementation Period, the Bank expects that the changes would take effect from the end of that period. However, further modifications to the proposals in this consultation package may be required to reflect any changes to the rules and BTS during the period and any agreement that is reached between the UK and EU on their future relationship.
HM Treasury has announced its intention to provide the financial services regulators with a temporary transitional power that could be used to grant transitional relief in respect of changes to firms’ and FMIs’ regulatory obligations that are being made under the Act (including through EU Exit Instruments). This CP sets out the Bank’s proposed approach to using this power.
This consultation closed on Wednesday 2 January 2019. The Bank invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP25_18@bankofengland.co.uk.
Responses to this CP will be shared with the FCA.