The move follows the announcement from the UK and the European Council that sufficient progress had been made to move to the second phase of negotiations related to transition (the ‘implementation period’) and the framework for the future relationship between the UK and the EU.

In its statement, the FCA said it ‘welcomes the progress that has been made and is supportive of open markets and free trade in financial services underpinned by strong regulatory standards’.

The regulator says the final nature of any implementation period is yet to be agreed but it is anticipated to mean that firms will be able to continue to benefit from passporting between the UK and EEA after the point of exit and during the implementation period.

In a statement to the House of Commons, Chancellor Philip Hammond said the government is ‘confident that it will agree an implementation period and a deep and special partnership’, but also acknowledged the need to plan for ‘the unlikely scenario of no deal being reached’.

As a result, the Treasury has announced that, if necessary, the government will legislate for a temporary permissions regime which will enable EEA firms and funds operating in the UK to continue their activities in the UK for a limited period after withdrawal.

This regime will enable relevant firms and funds to undertake new business within the scope of their permission, enable them to continue performing their contractual rights and obligations, manage existing business and mitigate risks associated with a sudden loss of permission.

Alongside the temporary permissions regime, the government will legislate, if necessary, to ensure that contractual obligations, such as insurance contracts, which are not covered by the regime, can continue to be met.

For firms and funds that are solely regulated in the UK by the FCA they would need to notify the FCA before exit day of their desire to benefit from the regime but this notification for temporary permission will not require the submission of an application for authorisation. The FCA is to set out further details in the new year.

The Treasury is also to bring forward secondary legislation to ensure that UK authorities are able to carry out functions currently undertaken by EU authorities. This will see the Bank of England given functions and powers in relation to non-UK central counterparties (CCPs) and non-UK central securities depositories (CSDs). The FCA will be given functions and powers in relation to UK and non-UK credit rating agencies and trade repositories and any powers necessary to manage the transition post-exit.

Hammond concluded his statement by saying: ‘Whatever the outcome of the negotiations, the government is strongly supportive of continued engagement and cooperation between UK and EU regulators to protect financial stability. It is vitally important that we work with our European partners to put the technical arrangements in place to avoid financial market disruption.’

Philip Hammond’s statement is here.

FCA statement here.

Bank of England statement here.

Report by Pat Sweet