In outline:

The start of European Council summit on Thursday 21 March provided the opportunity for the EU to set out the basis for delaying the date (currently 29 March) when the UK will leave the EU - by an extension of the Article 50 period. If the House of Commons approves the EU/UK Withdrawal Agreement (WA) at a meaningful vote (MV3) (before 29 March), the extension would last until 22 May[1]. If the WA has not been approved, then the extension would only be until 12 April. In the latter event, the European Council would expect the UK to indicate a way forward; in practice a second extension (of any length) would then only be considered on the basis of UK participation in the European Parliament (EP) elections in May. According to the European Council Decision, the earliest date of a ‘no deal’ exit would now be 12 April[2].

Under UK law, the date of the UK’s exit under European Union (Withdrawal) Act 2018 must be amended before 29th March; this involves a statutory instrument (which may have to be laid before MV3 and before the extension date is know – presumably this SI may simply amend the date to 12 April).

If the WA is approved at MV3, the UK would have about 8 weeks to complete the domestic legislative process to implement the WA. This would involve substantive/primary legislation – the European Union (Withdrawal Agreement) Bill. This bill (which the UK Government (HMG) has so far refused to publish before MV3) will implement the WA transitional period (TP) in UK law (and will continue the principles of direct effect and supremacy of EU law as currently applied under the European Communities Act 1972)[3].

FCA has now responded (see Document 2 below) to ESMA’s statement about problems relating to MiFIR trading obligations under the no-deal regime (ND regime) (see our previous update commentary here). FCA still sees problems and seeks further dialogue.

Fears of no-deal and HMG’s abandonment of its goal of preferential access in financial services (FS), are leading to a substantial migration of assets and business from the UK to the EU-27. This week, data was provided by Andrea Enria (chair of the ECB supervisory board), who gave an interview to the FT, and by EY in a survey (see Document 1). Enria reported that Brexit would result in 24 additional institutions (7 of which are significant and thus subject to direct ECB regulation under the SSM)[4] in the eurozone under the SSM and the expansion of existing institutions in EU-27, with planned transfers of assets of Euro 1.2 trillion under the SSM (of which 90% were accounted for by the 7 institutions). EY looked at broader questions of migration to the EU with an estimate of £1 trillion, accounted for by movements of client money/assets and balance sheet assets[5].

Nausicaa Delfas of FCA gave a speech about ‘Brexit and beyond’ (see Document 3 below). This looked at the ND regime and broader international policy. For EEA firms doing business in the UK, Delfas emphasised the limits of the Financial Services Contracts Regime (FSCR – see further details in our update here) and encouraged firms, were necessary, to make an application under the Temporary Permission Regime (TPR – see further details in our update here). The deadline is (currently) 28 March. Over 1,000 EU firms and fund managers (representing many more thousands of funds) had already decided to join the TPR. The first authorisation application landing slot for TPR firms is expected to be October to December 2019 and the last to be January to March 2021; firms will be notified after exit day. The position for UK firms was much more patchy across the EU-27 with variants on TPR of some sort in Germany, Spain, France, Ireland, Italy, Luxembourg and the Netherlands. Delfas also referred to the use by FCA of the temporary transition power which will allow firms 15 months to adjust to changes in the UK regime.

Risks remained relating to – client approvals for transfers of business and contracts to EU-27 entities from UK institutions, contract continuity (despite the measures taken) and the lack of EU equivalence decisions (see our previous update and above re the MiFIR trading obligation).

Looking at broader international issues, Delfas referred to the recent UK/US derivative package (see our previous update here for details) and said FCA had put in place ‘numerous arrangements with international counterparts which will enable overseas firms to access the UK and vice versa’; however, no further examples were given. For the future, the speech emphasised the hope that after the TP, the EU could be persuaded to expand/broaden the mutual recognition/DRC available under third country equivalence; Delfas said only that ‘…there is also a strong basis for both sides to discuss broadening their respective equivalence frameworks ‘. This merely repeats current HMG policy without any indication of the prospects of success.

HMG’s ‘Global Britain’ policy was also evident and there was enthusiasm for international standards. Delfas also emphasised the commitment to bilateral coordination through various structures. She referred to the FCA’s new role in providing technical expertise and advice to support the Treasury (HMT) as HMG develops its positions on its financial services trade policy. Delfas also emphasised the commitment to bilateral coordination through various structures. She referred to the FCA’s new role in providing technical expertise and advice to support HMT as HMG develops its positions on its financial services trade policy. ‘Post-EU, the UK will have the ability to develop its own independent trade policy which will require us to contribute technical support and advice on free trade agreements covering financial services, as well as other mechanisms for enhancing trade and regulatory cooperation.’ Delfas gave a recent example - the Mutual Recognition of Funds (MRF) agreement with the Hong Kong Securities and Futures Commission (SFC), which supports reciprocal access to each other’s jurisdiction for the marketing and distribution of investment funds covered by the scheme. Delfas emphasised that the DRC/mutual recognition was on the basis of (HMG’s catch phrase) ‘equivalent outcomes’ (rather than harmonised rules). ‘Close and ongoing regulatory cooperation is key to the success of this scheme, and other similar market access arrangements. We therefore support HM Treasury’s aim of expanding the financial regulatory dialogues the UK has in place with priority countries as they will provide a further useful mechanism for ensuring this cooperation going forward’. Delfas added that FCA welcomes the international attention being paid to market fragmentation – in both FSB and IOSCO.'

This week, Liam Fox announced another ND regime rollover agreement in these terms - ‘Our negotiators have just initialled a trade agreement with Iceland & Norway for the European Economic Area. This is the 2nd biggest agreement we're rolling over and trade with EEA is worth nearly £30bn. This is on top of the agreement we’ve signed with Liechtenstein.”[6] This seemed to imply that the UK/EEA-3 single market relationship would continue despite there being no-deal between the UK and the EU. This is obviously not the case; in any event the agreement does not cover FS[7]. In FS, EU temporary equivalence decisions are expected to apply across the EEA-3 under the EEA Agreement principles. For example the European Commission implementing decision on UK central counterparty regulation[8] under EMIR (see our previous update here) is listed as being processed under the EEA Agreement Joint Committee here. Subject to completion of this procedure, the ESMA recognition of UK CCPs would then take effect automatically under the EEA Agreement.

The UK previously (in December 2018) announced an agreement with the EEA-3 (Iceland, Norway and Liechtenstein) parallel to the UK's proposed Withdrawal Agreement with the EU, known as the "EEA Separation Agreement" [9]. If the WA takes effect, this agreement would temporarily govern aspects of the UK's relationship with the EEA-3 after the TP under the WA. This makes no special provision for FS. HMG hopes that by the end of the TP, the EU will have granted more/broader based equivalence/recognition to the UK (which would apply across the EEA-3 as described above).