Regulatory Developments Round-Up: January 2019

Introduction

With the Brexit deadline looming in less than two months, Firms should be prepared for the no deal scenario and how this will impact your activities. Breaking news on Friday was ESMA’s announcement that a Memorandum of understanding had been signed allowing delegation of UK Firms to continue for example providing investment management services. This will provide welcome certainty to a number of firms.  We explore the various Brexit scenarios in further detail below and would be delighted to share further insights on this or any other regulatory topic.

Nancy King
[email protected]
Telephone: 0207 205 2249
Portman Compliance Consulting LLP
85 Gresham Street, London EC2V 7NQ
www.portmancompliance.com

Brexit

Post-(no deal) Brexit Temporary Regimes

We update our previous newsletter to note that the FCA is now receiving notifications with regard to the Temporary Permission Regime.

You should familiarise yourself with the TPR requirements NOW if you are an:

• EEA based firm currently passporting into the UK; or
• EEA-domiciled investment fund (UCITS and AIFs such as EuVECASs, EuSEFs, ELTIFs, MMFs) marketing into the UK under the relevant passport.

If you fall under either of the above categories and wish to continue to passport services into the UK or market your EEA fund into the UK, in the event of a “no deal” Brexit, you must notify the FCA that you wish to enter the “Temporary Permissions Regime”. This will enable you to continue to provide services or market your fund into the UK whilst you apply for full authorisation and lasts up to 3 years from exit day.  The FCA is now able to receive TPR notifications (the “notification window” opened on 7^thJanuary 2019 and will close at the end of 28^thMarch 2019).

For fuller guidance on how to make the notification and the rules that will apply, please consult the FCA TPR

FCA Statement on EU Withdrawal Impact Assessment

This was published 29^thNovember and outlined the FCA’s view of the impact analysis of a deal/no deal Brexit (in which the FCA purports to take a neutral stance).

No Deal

1. No implementation period
2. UK would be a “3^rd country” and would fall under WTO rules (individual EU member states or National rules apply)
3. EU laws convert to “UK laws” via EU withdrawal Act.
4. FCA and BoE likely to be given powers to assist the transition of financial services
5. No passporting (as no supervisory co-operation)
6. Execution of Firm contingency plans may cause market fragmentation and cross-border risk.
7. Longer term reduction in competition and increased costs for consumers (UK and EU).
8. Outcomes depend upon unknowns e.g. how countries will merge oversight of common functions such as market oversight.

Deal

1. Implementation period (30^thMar ’18 – 31^stDec ’20). Extendable by mutual consent (during which time UK would be subject to EU rules without input).
2. Avoids “cliff edge” risks.  FCA says “the risks presented in an implementation period are preferable to the risks of a no-deal scenario”.
3. UK will need to implement any new EU laws during implementation period (without input).
4. Will be a political declaration outlining “equivalence” between UK and EU
5. FCA will cease to be a “voting member” of ESMA – FCA believes a strong case for continued UK close cooperation.
6. Exit without agreement = greater risk and uncertainty.
7. FCA believes that the longer the transition continues the greater the risks regarding future EU legislation.

Financial Crime

Cyber/Technology Resilience: FCA report (December 2018)

The Report highlights output from 296 self-assessments completed by firms assessing their technology and cyber capabilities.  The focus areas were: governance, delivery of change management, managing third party risks, effective cyber defences.

• Summary:
  • Cyber-attacks account for 18% of the operational incidents reported to the FCA Oct 17-Sept 18.
  • Firms felt governance was their strongest control e.g. allocating responsibility to Board level.
  • Main areas of cyber weakness: people, 3^rdparty management, protection of key assets.Main issues re controlling information held, identifying/managing high risk staff, 3^rdparty issues such as IT failure.

Portman Compliance Consulting LLP specialises in providing pragmatic and commercially-aware regulatory support to small and medium sized FCA regulated firms. Our clients can determine which level of outsourcing they require:

• FCA Authorisation
• Ongoing
• Special Projects

We build strong relationships with our clients by understanding their individual business models, risk profiles and by establishing good communication links.

Our objective is to supply comprehensive compliance support to enable our clients to focus on growth and opportunity.

Please get in touch with Nancy King by email  [email protected] or phone 0207 205 2249 to find out more information how we can help you in financial compliance.  We would be delighted to provide a client CPD at your offices to go through in more detail about this article.