ESMA and the FCA have confirmed that they have agreed the substance of a multilateral Memorandum of Understanding (MoU) between the FCA and national regulators (NCAs), covering supervision, enforcement and information exchange. They have also agreed an MoU on the supervision of credit rating agencies and trade repositories.
The announcements make specific reference to the delegation of portfolio management from EU27 firms to UK entities, providing much-needed certainty. Firms will need to ensure, however, that they have appropriate substance in the EU27 delegating entity.
Other NCAs have recently made announcements, or are expected to do so very shortly. For example, the Luxembourg CSSF recently confirmed (PDF 64 KB) that it will endeavour to ensure the required cooperation between it and the FCA is in place by 29 March in the event of a no-deal Brexit.
The FCA has also issued further information on how it will use its temporary transitional power. It believes that it would not be consistent with its statutory objectives to grant transitional relief in certain areas. These include MiFIR and EMIR reporting, short selling notifications, securitisation notifications and information provided by EEA issuers of UK-listed securities. ESMA has issued a statement (PDF 146KB) setting out the treatment from exit day of derivative contracts where one or both counterparties are UK.
Firms need to prepare now to meet their UK reporting obligations from exit day. The FCA has indicated there may be regulatory forbearance for a period for those firms that can evidence they have taken reasonable steps to comply by that date.
It remains the case that, absent a deal and therefore no transition period, EEA firms and funds wishing to continue to operate, provide services or market funds in the UK need to notify under the UK Temporary Permissions Regime (TPR) by 29 March, exit day. For those EU27 firms that do not wish to join the TPR and intend to wind down their business in the UK, the Financial Services Contract Regime (FSCR) will enable them to continue to service existing contracts for up to five years - see here for more details.
UK firms operating, providing services or marketing funds in EU27 member states need to determine whether any national arrangements are available and to monitor any EU-level developments.
All firms need urgently to take practical steps to manage a range of outcomes including “no deal”, and the deadline is fast approaching. Also, any EEA-based firms that choose to enter the UK TPR, to apply for new or extended permissions, or to use the FSCR will need to be able to come into compliance with rules that do not currently apply to them, including the FCA's Principles for Businesses and various reporting obligations.