The United Kingdom (UK) is scheduled to leave the European Union (EU) on 29 March 2019 (‘Brexit’). The terms of the UK’s exit remain subject to on-going negotiation between the UK and EU with a range of outcomes possible.
ASIC is carefully monitoring developments in the UK and has been liaising closely with the UK Financial Conduct Authority (FCA), the Bank of England (BoE), other Australian financial authorities, and our regulated stakeholders to identify and plan for potential Brexit-related impacts. This includes contingency planning in the event that the UK leaves the EU in a ‘no deal’ scenario.
ASIC Commissioner Sean Hughes said, “ASIC is well placed to manage the impacts arising in a ‘no deal’ scenario. We have been working closely with the UK’s financial regulators and our aim is to limit disruption to Australian financial services and our markets.”
ASIC will continue to monitor developments post-Brexit as intended and unintended consequences become apparent.
Enhanced co-operation with UK regulators
ASIC is seeking to enhance its co-operation with UK financial regulators post-Brexit. The FCA will acquire functions and supervisory powers in relation to credit rating agencies, benchmarks and trade repositories, which are currently supervised at the European level by the European Securities and Markets Authority (ESMA). The BoE will acquire functions and powers in relation to non-UK central counterparties, also currently exercised by ESMA. ASIC and the FCA will enter into new Memorandums of Understanding (MoU) on trade repositories and credit rating agencies and will update our existing MoU on alternative investment funds. ASIC and the BoE will update information sharing arrangements on clearing and settlement facilities.
Existing equivalence decisions granted in respect of Australia by the European Commission (EC) before exit day, will generally be incorporated into UK law and will continue to apply to the UK’s regulatory and supervisory relationship with Australia, post-Brexit. However, the BoE has confirmed that it will conduct an equivalence assessment of Australia’s regime for central counterparties, notwithstanding equivalence being granted in favour of Australia by the EC under Article 25 of the European Market Infrastructure Regulation (EMIR). ASIC and the Reserve Bank of Australia (RBA) are working together with the BoE on the equivalence assessment.
UK and Australian firms
ASIC is aware of 298 UK firms operating in Australia and has undertaken a review of potential impacts on licences and exemptions issued. Of these firms, 285 UK foreign financial services providers (FFSPs) operate in Australia under an Australian financial services (AFS) licensing exemption. In addition, five UK market operators hold an Australian market licence and six operate under exemption notices. One UK firm holds an Australian clearing and settlement facility licence and one UK firm holds an AFS licence. ASIC is working with the RBA and the BoE to ensure business continuity for systemically important Australian firms operating in the UK. The ASX Group has notified the BoE that it wishes to enter the UK central counterparty temporary recognition regime and therefore we expect it to continue to be able to provide clearing services in the UK. ASIC has identified a small number of regulatory actions that will be needed and, as necessary, we envisage completing these steps ahead of the UK’s withdrawal from the EU in a ‘no-deal’ scenario.
Are you prepared for Brexit?
We encourage firms with global operations to review their AFS licensing arrangements as part of their broader preparations for Brexit. For example, FFSPs currently relying on an AFS licensing exemption, should consider the implications for their AFS licensing status where their global operations are to be transferred to a different EU subsidiary (see: 18-278MR – ASIC extends relief for foreign financial service providers).
ASIC Commissioner Sean Hughes said, “In view of the Brexit date of 29 March 2019, we expect firms to have adequate contingency measures to mitigate the potential implications of Brexit for their operations and importantly, to ensure they have in place appropriate AFS licensing arrangements to provide services in Australia.”
We encourage individuals and businesses to stay informed through the UK Government website, including the Department for Exiting the European Union, the FCA webpage on Brexit and to seek commercial or legal advice as necessary.
On 25 November 2018, UK and EU leaders approved the text of a treaty-level Withdrawal Agreement and political declaration on the future EU-UK relationship. The Withdrawal Agreement includes a transition period that would run from 29 March 2019 to 31 December 2020, with the possibility of a one or two-year extension.
During the transition period, the UK will remain subject to EU rules and regulations. The UK will continue to implement new EU law that comes into effect and the UK will continue to be treated as part of the EU’s single market in financial services.
A ‘no deal’ scenario is one where the UK leaves the EU and becomes a third country at 11pm GMT on 29 March 2019 without a Withdrawal Agreement and framework for a future relationship in place between the UK and the EU.