The UK’s withdrawal from the European Union (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 provides Government ministers with powers to make changes to the law so that it continues to operate effectively after the UK’s withdrawal from the EU – these processes are referred to as ‘onshoring’ or ‘Nationalising the Acquis’ (NtA). The Government has delegated some of these powers to the Bank of England (Bank), as resolution authority and financial market infrastructure (FMI) competent authority, and the Prudential Regulation Authority (PRA).
On Thursday 18 April 2019 the Bank and PRA published their amendments to financial services legislation under the Act. This included final EU Exit Instruments covering NtA changes to PRA and FMI rules and Binding Technical Standards (BTS) in the Bank’s and PRA’s remits. These EU Exit Instruments have, with limited exceptions, an effective date of ‘exit day’ as defined in the Act.
In light of the extension of the Article 50 period announced on Wednesday 10 April 2019, and the consequent change of ‘exit day’ in the Act to Thursday 31 October 2019 at 11pm, some minor amendments are needed to the Bank’s and PRA’s EU Exit Instruments. There are also additional provisions in EU law that apply before Thursday 31 October 2019. These provisions will now meet the definition of retained EU law and require amending.
This Consultation Paper (CP) contains:
- Section A: an update on the Bank’s and PRA’s intended use of the temporary transitional power provided for in the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 (FSMA SI).
- Section B: Bank and PRA consultation with proposals to fix deficiencies arising from the UK’s withdrawal from the EU and make consequential changes in light of the extension to the Article 50 period. Section A is split into two parts:
- Part 1 sets out the PRA’s proposals in relation to the PRA Rulebook and BTS within the PRA’s remit that will be retained, or ‘onshored’, in UK law.
- Part 2 sets out proposals by the Bank, as FMI competent authority in relation to BTS under the Central Securities Depositories Regulation (CSDR).
The draft PRA Rulebook EU Exit Instrument contained in Appendix 6 shows all proposed changes to the PRA Rulebook: (EU Exit) Instrument 2019 originally published on Thursday 18 April 2019. The further changes being consulted on in this CP are highlighted in yellow in Appendix 6.
This CP is relevant to all firms authorised and regulated by the PRA, including those that expect to have a deemed permission under the ‘temporary permissions regime’ (TPR) or Financial Services Contracts Regime (FSCR), or that seek to apply for PRA authorisation in the future. It is also relevant to FMIs recognised and supervised by the Bank, including those that expect to have a deemed recognition under the ‘temporary recognition regime’ (TRR).
HM Treasury has given the financial services regulators a temporary transitional power to enable firms to adjust to changes made as a result of onshoring. The Bank and PRA published near-final transitional directions and accompanying guidance setting out the intended use of the temporary transitional power on Thursday 28 February 2019. As highlighted in the April version of PS5/19, the Bank and PRA have been considering their proposed use for the temporary transitional power in light of the extension of the Article 50 period to 31 October 2019 (see Section A). The Bank and PRA intend to make and publish final directions and guidance ahead of exit day reflecting those considerations.
The changes proposed in this CP would take effect on 31 October 2019 at 11pm (‘exit day’) only in the event that there is no Implementation Period. If the Withdrawal Agreement between the UK and EU is ratified and the Implementation Period commences on exit day, the proposed changes would take effect after the Implementation Period. Further modifications to PRA and Bank rules and onshored BTS may be required to reflect any arrangements made between the UK and EU as part of their future relationship.
Responses and next steps
This consultation closes on Wednesday 18 September 2019. The PRA and Bank invite feedback on the proposals set out in this CP. Please address any comments or enquiries using the details provided in Chapter 4 (for proposals set out in Part 1: PRA consultation) and Chapter 6 (for proposals set out in Part 2: Bank (as FMI competent authority) consultation).
Responses to this CP will be shared with the FCA.
The CP including the Appendices runs to 236 pages. To be helpful to readers, we have included a complete and split version of the CP, and its appendices, below.