This week saw the successful conclusion of negotiations over the revised Withdrawal Agreement (“WA”) (see Document 2 below) and the Queen’s Speech (see Document 1 below). However, the outcome of the Brexit process remains uncertain and the new domestic legislative program is overshadowed by the prospects of a general election.
The Financial Services Bill and the Queen’s Speech
The Queen’s speech listed new legislation in many areas (see the speech and the more detailed briefing notes at Document 1 below). However, much of this may be irrelevant if there is a general election this year. The section on ‘Delivering Brexit’ is of more immediate concern. The critical bill is, of course, the long-awaited European Union (Withdrawal Agreement) Bill (“WAB”) which would implement the revised WA, but the proposed legislation goes further and reflects HMG’s broader Brexit/Global Britain policy (or as HMG puts it ‘how we will seize the opportunities created by Brexit’). There are Brexit bills on Trade, Agriculture, Fisheries and Immigration and Social Security Co-ordination and Private International Law. The legislative program is presented on the assumption that the WAB is enacted and the UK exits under the WA; it does not address the question of any further legislation for a no-deal exit.
HMG also announced that ‘steps will be taken to provide certainty, stability and new opportunities for the financial services and legal sectors’. The latter is a reference to the Private International Law Bill mentioned above and the former to a Brexit related ‘Financial Services Bill’ (“FSB”). The only information released so far by HMG on the FSB is the summary in the briefing notes (set out under Document 1 below). The purpose of the bill is to adapt the UK regulatory regime for the post-Brexit situation. It is not clear how the general aspirations for the sector expressed by HMG, will be reflected in legislative provisions in the Bill beyond the 3 specific provisions listed in the notes, which are –
- ‘Simplifying the process which allows overseas investment funds to be sold in the UK,
- Implementing the Basel standards to strengthen the regulation of global banks, in line with previous G20 commitments, and
- Delivering our commitment for long-term market access to the UK for financial services firms in Gibraltar as part of the UK family.’
The notes also state that ‘This Bill will build on the extensive secondary legislation that the Government brought forward under the EU (Withdrawal) Act 2018 to ensure the effective operation of retained EU law,…’ We will return to this subject when we look at the WAB in the next update. Meanwhile it was interesting to note HMG’s list of policy areas for FS included FinTech and – ‘Ensuring the financial services sector is supported to help meet the Government’s commitments on climate change’.
Finally, HMG will not be reintroducing the Financial Services (Implementation of Legislation) Bill. This was the bill proposed by Mrs. May’s government, as part of no-deal planning, which would have permitted certain ‘in-flight’ EU legislation to be implemented in the UK by secondary legislation post exit (see our update commentary here). This has probably been dropped partly because of the government’s difficulties in passing pre-exit Brexit legislation and partly because the legislation did not sit well with the clean-break message of Mr. Johnson’s administration.
The revised Withdrawal Agreement Package
The full text of the revised EU/UK package only emerged on Saturday 19th October shortly before the exceptional sitting of Parliament on that day. It emerged that the scope of the ‘renegotiation’ by Mr. Johnson’s administration had been extremely narrow. The entire treaty and all of its Protocols except one were untouched by the renegotiation process (except for minor/technical changes). The only legally operative text to be amended substantially was the Protocol on Ireland/Northern Ireland. There were also changes to the separate Political Declaration (PD), which is not legally binding/operative.
Mr. Johnson left it very late to put forward firm proposals for the renegotiation (and even later to concede his acceptance of a NI/GB customs border). This may well have led to the very narrow scope of the changes that were eventually agreed. There were no changes at all to the text on FS (which appears in the PD). This is disappointing. Mrs. May had sacrificed services sectors to pursue her policy of close alignment/all-UK customs arrangements for goods, which avoided an NI/GB customs border. Mr. Johnson ditched these hard-won concessions and was therefore in a position to improve the outcome for services, and for FS in particular (see further in last week’s update here). He was either not interested in doing so, or he was unable to secure a broader renegotiation so late in the day. Mrs. May’s PD text on FS (see our update commentary here) therefore remains the basis for the negotiation of the future relationship. It represents the hardest and most complete break from the single market for FS and there are not even binding EU commitments to grant UK equivalence decisions (or any transitional or no-deal protections). The EU will thus have a free hand to continue its ‘trade war’ in FS.
The terms of the WA on the transition (or ‘implementation’) period (“TP”) are unchanged; the period therefore still expires on 31st December 2020 (see Article 126 of the WA). This will mean the period is considerably shorter than originally envisaged. It can still be extended by agreement to the end of 2022 (or an earlier date)
There are now new concerns about the ‘no-deal’ risk at the end of the TP (whenever that occurs). Under Mrs. May’s WA package, if the TP expired without an FTA being in place, the Irish protocol provided a (legally operative) default which involved a UK wide custom arrangement with the EU. This was a form of secondary transition period (without a time limit) for the goods sector (see Article 6 of the Protocol on Ireland/ Northern Ireland). The revised protocol only applies to the NI/GB border; there is no default to cover the UK/EU customs relationship/border. Hence the new possibility of a ‘second’ no-deal scenario in the goods sector. This might arise because HMG sought a no-deal exit at that point or would not countenance an extension to the TP or simply because of a genuine breakdown in the EU/UK negotiations over the new relationship/FTA.
For FS firms (and for other services sectors), there was a second ‘no-deal risk’ at the end of the TP even under Mrs. May’s package (and this remains under the Johnson renegotiation). At the end of the TP, the UK will exit the single market and there are no legally operative default arrangements. This seems to have been less of a concern because FS had already been abandoned politically and because the gap for FS firms between ‘no-deal’ and an FTA reflecting the weak PD text on FS, was not seen as being very great (but see our update last week for further commentary).
1. HMG: Queen's Speech 2019
Text of the Queen’s Speech delivered on 14 October 2019 has been published, along with background briefing notes. The latter includes bullet-point synopses with regard to all of the bills that have been announced, including the European Union (Withdrawal Agreement) Bill, the Pension Schemes Bill and the Financial Services Bill. The Financial Services Bill is part of the Government’s new agenda, details can be found on page 28 of the briefing notes which states: which states: ‘ The purpose of the Bill is to:
- Ensure that the UK maintains its world-leading regulatory standards and remains open to international markets after we leave the EU.
The main benefits of the Bill would be:
- Supporting the UK’s position as an international financial services centre.
- Enhancing the competitiveness of the UK’s financial services sector, while maintaining high standards to protect UK consumers so that they can use financial services’ products with confidence.
- The Government will set out further measures to ensure the UK maintains its world-leading regulatory standards and remains open to international markets after we leave the EU in due course.’
2. EC Withdrawal Agreement
The EC has recommended that the Council endorse the agreement reached at negotiator level on the Withdrawal Agreement, including a revised Protocol on Ireland / Northern Ireland, and approve a revised Political Declaration on the framework of the future EU-UK relationship. The Commission also recommends that the European Parliament give its consent to this agreement. It notes that, apart from the revised Protocol with regard to Ireland, all other elements of the Withdrawal Agreement remain unchanged in substance, as per the agreement reached on 14 November 2018. The first link above contains the revised texts, a letter from Jean-Claude Juncker to Donald Tusk, the recommendation to the EC and a Q&A. The following links set out texts of speeches of 17 October 2019 by Michel Barnier and Jean-Claude Juncker at the joint press conference respectively.
3. HMT/BoE/PRA/FCA: MoU – equivalence and exemptions
This MoU is established in accordance with regulation 6 the Equivalence Regulations and sets out how the parties expect to co-ordinate the discharge of their respective functions in relation to equivalence determinations and exemption determinations and the provision of information or advice under the Equivalence Regulations. It is the Treasury who is responsible for determining equivalence and the Bank of England, PRA and FCA ‘are responsible for providing support to the Treasury.’
4. EC: EMIR Amending Regulation The Council has adopted a Regulation that amends EMIR with regard to the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs (the text appears in the second link below). It sets out how EU and third country clearing houses should be supervised following Brexit (the press release notes that, following Brexit, the three CCPs based in the UK will de facto become third-country CCPs). The Regulation is scheduled to be published in the Official Journal on 24 October 2019. The full regulation can be accessed here.
Other publications from the RegZone Brexit news feed
EBA: Communication on Brexit
EBA’s communication concerns remaining issues related to the preparation by financial institutions for Brexit and urges firms to continue their progress on contingency planning.
ISDA: No deal Brexit
ISDA has published FAQs.
TSC: BoE financial stability reports
TSC has published the transcript of the hearing held on 15 October 2019 attended by Mark Carney, members of FPC and Sam Woods (PRA). Topics include: the potential effects of Brexit on financial services (such as the deposit guarantee scheme in the event of a no-deal Brexit).
FCA: Board minutes
FCA has now published the minutes of its 24/25 July 2019 meeting. Topics include Brexit, Panel reports, proposed remedies on pension transfer advice and the Annual Enterprise-wide Risk Management Report.
EC: Statement by Michel Barnier
Michel Barnier’s brief statement of 13 October 2019 follows.
Department for Exiting the EU: Joint Ministerial Committee (EU Negotiations) Communiqué
The Communiqué with regard to the meeting that took place on 10 October 2019 has been published.
HMT has announced that the intended Budget date will be 6 November 2019.