The Financial Conduct Authority (FCA) has laid out its proposals to ensure a "smooth transition" for EEA firms conducting business in the UK in case of a no-deal Brexit and a failure to secure an implementation period.
Its proposals are part of one of two consultation papers published on Wednesday (10 October), as the City regulator readies itself for its role in the fallout of the UK's departure from the European Union (EU).
If the UK leaves the EU without a deal on 29 March 2019 and therefore no transition period is implemented, EEA asset managers would lose their "passporting" permission to conduct business in the UK, as UK firms would lose their right to trade in the EU.
EEA-based firms would then need to seek authorisation in the UK to continue to carry on a regulated activity in the UK, while EEA-domiciled investment funds would also need to seek recognition in the UK to continue to be marketed there.
To address this, the government set out legislation for a temporary permissions regime, allowing for relevant EEA firms and funds to continue to access the UK market while seeking full authorisation or recognition in the UK.
The EU and UK had agreed the terms of an implementation period as part of the draft withdrawal agreement, which would see EU law, and consumer rights and protections remain in place from 29 March 2019 to 31 December 2020.
However, the implementation period is subject to further negotiations between the UK and the EU, which must both agree the final terms of the withdrawal agreement for it to take effect.
Negotiators on both sides are still at loggerheads over a deal, as issues such as disagreements over the future of the Irish border continue to block progress.
The Treasury confirmed on 8 October it intends to bring forward legislation to allow regulators to grant some flexibility in applying new requirements to EEA firms post-Brexit.
In its proposals for how such permissions should work, laid out in a consultation paper published on Wednesday (10 October), the FCA said it has "tried to balance several factors… including consumer protection, designing a regime that is proportionate and that firms and fund managers can reasonably comply with".
The FCA's proposed Transitional Provisions Regulations regulations, if approved by Parliament, would repeal the relevant parts of UK legislation that give effect to the EU passporting regime, and allow EEA firms passporting into the UK to be treated as if they have permission and continue with regulated activities in the UK.
Similarly, managers of EEA-domiciled UCITS and funds and Alternative Investment Funds (AIFs) that market their funds in the UK will be able to continue to do so.
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