Financial Services Update – September 2019


Financial Services Update – September 2019

This page was last updated on September 17, 2019

September 2019


As this rumbles on, it continues to create uncertainty and difficulty for firms to plan for the future.

The FCA has published guidance on how to prepare for Brexit, although it by its nature limited as the FCA themselves do not know what’s going to happen. Further information and a helpline number to call can be found here: https://www.fca.org.uk/firms/preparing-for-brexit.

What we know so far is the European Union (Withdrawal) Act 2018 will convert existing direct EU legislation into UK law on exit day, and preserve existing UK laws which implement EU obligations. The Government has also been given powers to amend this retained EU legislation so that it works effectively when the UK leaves the EU. It has used this power to make numerous statutory instruments which amend retained EU financial services legislation. The Government’s intention is that the same rules and laws will apply after exit as before, as far as possible, but with the necessary amendments to reflect the UK’s new position outside the EU, and to smooth the transition to this situation.

Passporting is the way by which regulated firms in both the UK and the EU conduct business in each other’s states. After Brexit, passporting in its current form will end.

If there is an implementation period, then rules for firms will be clarified during that time and will apply from 1 January 2021. If there is no implementation period then the passporting regime would abruptly fall away at which point the ‘Temporary Permissions Regime’ (TRP) kicks in as a backstop. This only applies to firms passporting into the UK though, not the other way around.

There are many EEA firms and funds which currently passport into the UK, and this is what the TPR would apply to. It will allow them to continue their activities for a limited time (up to three years) after Brexit.

Firms should consider both scenarios as it is as yet uncertain what will happen with negotiations. This will particularly affect firms and funds based in the UK who conduct business in the EEA, and firms and funds based in the EEA who conduct certain types of business in the UK.

Senior Manager and Certification Regime

The Senior Manager and Certification Regime (SM&CR) has been in place for banks and large institutions for a number of years. Essentially it places ore responsibility on senior managers as individuals, rather than the firm as a whole. The idea is to make individuals within regulated firms more accountable for their actions.

The SM&CR is being extended from 9 December 2019 to cover small (solo regulated) firms as well, which brings a further 49,000 firms into scope. In practical terms the controlled functions are going and being replaced with SM&CR functions. The FCA are writing to all firms with their proposed mapping of existing controlled functions to new SM&CR functions, so firms will need to review to make sure they agree it’s correct.

One side effect of this change, is we may see a reduction in firms willing to add others as Appointed Representatives. As SM&CR means individuals are more responsible if something goes wrong, keeping adequate oversite of Appointed Representatives may prove harder going forward and less appealing to those who provide that service.

FCA connect

The FCA connect platform is the online system which allows firms to change their standing data (permanent details). There is a requirement for all firms to register for FCA Connect if not already, by January 2020. Also from January there is a requirement to review this information annually and this has to be done via the Connect Platform. Firms can register here: https://www.fca.org.uk/firms/connect/registration

Other changes

There are proposals to amend the COLL handbook (see CP19/27) on clearing and settlement of derivatives transactions. This may affect fund administrators with funds holding this type of instrument.

The FCA also has an open consultation on banning the sale, marketing and distributions of derivatives and exchange traded notes referencing cryptoassets to all retail consumers ( CP19/22). The FCA believes that retail customers cannot reliably assess the risks of these instruments.

New Capital Adequacy Rules

The FCA is finalising the rules on changes to the capital adequacy regime for firms.

The rules are EU wide, although have been driven by the FCA, so don’t expect Brexit to change any of them. The FCA is finalising how it is going to implement the new rules and is due to release a consultation paper in the next few months.

In the meantime you can read about the proposals here: http://shipleys.com/resources/current-issues/new-capital-requirements-for-investment-firms

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary, if you would like advice or further information, please speak to your usual Shipleys contact.

Copyright © Shipleys LLP 2019

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