UK financial regulatory body, the Financial Conduct Authority (FCA) has outlined how it would use the temporary transitional power in the event the UK leaves the EU without an agreement.

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Image: Entrance to FCA building. Photo: Courtesy of FCA.

The temporary transitional powers are expected to give the FCA the ability to delay or phase in changes to the regulatory requirements made under the EU (Withdrawal) Act 2018, for a maximum of 2 years from Brexit.

The regulator stated that it will use this power to make sure that firms and other regulated entities do not need to prepare now to meet the changes to the regulatory obligations connected to Brexit.

It has also set out the areas where it would not make transitional provision and expects firms and other regulated persons to prepare for complying with post-Brexit regulatory obligations.

Last June, the financial regulatory body announced its role to prepare for Brexit and has also prepared a scenario where a no-deal Brexit takes place. It has advised firms to prepare for such a scenario.

The FCA noted that the Treasury has introduced several transitional regimes and arrangements within financial services legislation to minimize the disruption for firms and other regulated entities.

The Financial Conduct Authority International executive director Nausicaa Delfas said: “The temporary transitional power is an important part of our contingency planning. In the event that the UK leaves the EU without an agreement, it gives us the flexibility to allow firms and other regulated persons to phase in the regulatory changes that would need to be made as a result of ‘onshored’ EU legislation. This will give firms certainty, ensure continuity, and reduce the risk of disruption.

“There are some areas such as reporting rules under MiFID II, where it would not be appropriate to provide a phase-in, as receiving these reports is crucial to our ability to ensure market oversight and the integrity of financial markets.  In these areas only, we expect firms and other regulated persons to begin preparing to comply with the changes now.”

FCA stated that it would not be consistent with statutory objectives to provide transitional relief. In such areas, firms and other regulated persona are expected to start preparing for complying with changed obligations.

Firms that are subject to the Markets in Financial Instruments Directive 2004 (MiFID) II transaction reporting regime and connected persons and firms that are subject to reporting obligations under The European Market Infrastructure Regulation (EMIR).

EEA Issuers with securities traded or admitted to trading on the UK markets.

Investment firms subject to the Bank Recovery And Resolution Directive (BRRD) and that have liabilities governed by the law of an European Economic Area (EEA) State.

EEA firms which plan to use the market-making exemption under the Short Selling Regulation.

Firms that intend to use credit ratings issued or endorsed by FCA-registered credit ratings agencies after Brexit.