Financial services in the event of no-deal Brexit

Paul Edmondson

Paul Edmondson

Memoranda of understanding (MoUs) between UK and EU regulators will be an important part of the no-deal regime and have been under negotiation for some weeks.

The FCA and Esma have published two no-deal regime MoUs. The first is a multilateral MoU with EU and EEA national competent authorities covering supervisory cooperation, enforcement and information exchange.

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The second is with Esma covering credit rating agencies and trade repositories.

The first MoU is critically important in the investment management sector. 

Two further Memoranda of Understandings for the no-deal regime have been concluded between Esma and the Bank of England. The MoUs concern the supervision of central counterparties (CCPs) and central securities depositories (CSD). 

The conclusion of the MoU for CCPs satisfies one of the four conditions for the recognition of UK CCPs. The others are a letter from the BoE confirming UK CCPs are subject to effective supervision and prudential requirements; that the UK is not on the list of third countries with deficient anti-money laundering financing regimes; and the adoption of ‘equivalence’ decisions recognising the UK regime for the regulation of CCPs.

The decision only applies in the context of the no-deal regime and is temporary in nature and time limited to 12 months. 

Esma emphasises that recognition is being granted in the context of the no-deal regime only to limit the risk of disruption in central clearing and to avoid any negative impact on financial stability.

EU transitional measures in financial services are not driven by a policy of assisting UK institutions to adjust to Brexit.

The EU’s member states have also been progressing their no-deal regime.

Many EU 27 states have now announced measures to protect resident policyholders with UK insurers; these would generally enable pre-exit insurance contracts to be performed despite the loss of the EU authorisation or passport on exit.

Paul Edmondson is a financial services partner at CMS