With one week to go until the end of the Brexit transition period, the FCA is urging financial services companies to ensure they are ready. Customers should also be aware of any changes that may apply to them. Irrespective of the outcome of the negotiations between the UK and the EU on a free trade agreement, firms will need to be prepared for the end of the transition period.
The Brexit transition period ends at 11pm on 31 December 2020. After this point EU law will no longer apply in the UK. For many financial services businesses, this will mean changes to existing systems and services. The FCA expects firms to have ensured they have assessed the impact on them and their customers, and have taken action so they are ready for the end of the transition period.
As part of the FCA’s preparations the FCA will be making changes to the Financial Services Register. This is to take account of the end of passporting for firms and funds and the start of the temporary permissions regime (TPR). To make these changes the register will be unavailable from late evening 31 December to early morning 4 January.
More information about this can be found on the FCA website.
Nausicaa Delfas, Executive Director for International at the Financial Conduct Authority said:
‘With only a week to go, firms should have taken all the necessary steps to prepare for the end of the transition period. At the FCA we have been working closely with other agencies in the UK and Europe, as well as with businesses, to ensure customers are protected and markets work well.’
Passporting will no longer be possible after the end of the transition period. The FCA, working with other UK authorities, has introduced the temporary permissions regime (TPR). The TPR will allow EEA-based firms passporting into the UK to continue operating in the UK within the scope of their current permissions for a limited period, while they seek full FCA authorisation, if required. The deadline for EEA firms to notify the FCA they want to enter the TPR closes on 30 December 2020.
The TPR will enable various EEA funds to continue to be marketed in the UK for a limited period provided the fund manager has notified the FCA before the window for notification closes on 30 December 2020.
In addition, the FCA and other UK authorities have also introduced the financial services contracts regime (FSCR). This will allow EEA passporting firms that do not enter the TPR to wind down their UK business in an orderly fashion.
When passporting ends at the end of the transition period, the extent to which UK firms can continue to provide services to customers in the EEA will be dependant on local law and local regulators’ expectations. The FCA expects UK firms to take the steps available to them to ensure they act consistently with these local laws and expectations. The FCA is clear that firms’ decisions need to be guided by obtaining appropriate outcomes for their customers, wherever they are based.
Firms should also be prepared for any regulatory changes that will come into force. To help firms adapt to some of the new rules the Treasury has given the FCA new powers to make transitional provisions, known as the temporary transitional powers (TTP). Whilst the FCA has applied the TTP on a broad basis, there are some key exceptions where firms will need to comply with the changed requirements from the end of the transition period. Firms should check the implications of these for their business.
Systems and operational changes
The FCA continues to urge firms to be fully prepared for the end of the transition period. Whilst much progress has been made on preparations, the FCA recognises the challenges for firms in making the systems and operational changes required. The FCA intends to take a pragmatic approach to any issues should they arise, where firms can demonstrate that they have taken all reasonable steps to prepare.
The FCA’s focus during this time will be on our strategic objective of ensuring markets function well. The FCA will continue to monitor both primary market and associated secondary market activities closely, including for any misconduct by market participants, throughout this period during which some market volatility could arise.
This monitoring will include order book reporting, suspicious order and transacting reporting, inside information disclosures, price movement monitoring, and reporting on net short positions and the FCA will use its powers to request information and make enquiries where behaviour that may be abusive or creating a disorderly market is identified.
The FCA is calling on issuers to be particularly vigilant in ensuring procedures, systems and controls for the protection and disclosure of inside information are met and on market participants to be aware of the FCA’s significant detective capabilities.
For UK based customers, the FCA has put in place plans to ensure any possible disruption to UK financial services is minimised at the end of the transition period. Nevertheless, there will be some changes. Customers should have been contacted by their firms if they will be impacted by any of these changes.
Customers living in the EEA could be affected if they have a UK provider who cannot continue to operate in the EEA in the same way after the transition period ends. Many UK providers are planning to continue providing services. For example, some UK banks plan to continue providing services to customers resident in the EEA. If a bank is no longer able to provide services in the EEA, the FCA expects they should give customers sufficient notice that it plans to close an account. This will allow customers to look for alternative banking arrangements.
At the end of the transition period there may also be changes impacting travel insurance products that cover travel between the UK and the EEA. Customers who are likely to be impacted by this should visit the FCA website for information, and may want to check the position with their travel insurance provider in advance.
UK customers will still be able to make payments and cash withdrawals in the EEA after 31 December 2020, but these may be more expensive and could take longer. From 1 January 2021, banks and payment services providers will also have to provide additional information when making payments between the UK and the EEA, which includes the name and address of the payer and payee. If this information is not provided there could be disruption to payments. If customers have important payments, particularly direct debits, going out of their account to a European company, they may want to check these are going through as normal from 1 January 2021.
At the end of the transition period there will also be changes to some of the financial protections for customers. UK customers of a UK firm will continue to have the same access as currently to the Financial Ombudsman Service and the FSCS.
However, for UK customers of an EEA firm that’s operating in the UK under the TPR, or under the FSCR, protections may be different. Customers of EEA firms should also be aware that these firms will not have been authorised or otherwise assessed by UK regulatory authorities before entering into these temporary regimes.
Customers who are unsure whether they are covered by the FSCS or the Financial Ombudsman Service, should get in touch with the financial services provider to find out, or find out more about the TPR and FSCR.
Customers are advised to speak to their financial services providers now about any concerns, and to check the FCA’s updated information, available at: fca.org.uk/consumers/how-brexit-could-affect-you. Information can also be obtained from the Money Advice Service.