Brexit: information for participants in the wholesale markets operating in the UK (including wholesale banks, wholesale markets and asset managers)

Outward passporting and the treatment of clients

Passporting between the UK and EEA states has now ended.

There are other ways in which firms can access the EEA, and these will vary depending on the specific firms, the activities performed, and the regulatory regime in the relevant EEA state. The need for permissions or licenses may vary under local law in each EEA country as will the rules for accessing local financial market infrastructure.

If you were doing business in the EEA under a passport before the end of the transition period, you should have already made other arrangements to continue.

If you haven’t finalised your arrangements, you should speak to the relevant regulators where your clients are based, and take into account the relevant national law in those jurisdictions.

If you rely on reverse solicitation to service existing EEA-based customers without local authorisation, we strongly encourage you to get legal advice on how to continue servicing clients while complying with national law in the relevant countries.

You should also bear in mind that national regimes may change over time and this could affect your business model in the future. In all cases, you should continue to consider your own legal position carefully and get professional advice where appropriate.

Booking arrangements

If firms are expanding their presence elsewhere in Europe, the structures they put in place must enable us to supervise the conduct of their UK business effectively and make sure that they continue to meet our threshold conditions.

Our starting point is not to restrict business models but to understand the principles and practices involved, and how the conduct risks that arise from them are managed.

We set out some key principles in a letter on cross-border booking arrangements[10].

Cooperation arrangements

On 1 February 2019, we announced[11] the agreement of Memoranda of Understanding (MoUs) with the European Securities and Markets Authority (ESMA) and EU regulators covering cooperation and exchange of information.

The MoUs are: 

1. a multilateral MoU with EU and EEA National Competent Authorities (NCAs) covering supervisory cooperation, enforcement and information exchange
2. an MoU with the European Securities and Markets Authority (ESMA) covering supervision of Credit Rating Agencies and Trade Repositories

On 20 March 2019, we announced[12] the agreement of a template MoU with the PRA and European Banking Authority setting out the expectations for supervisory cooperation and information-sharing arrangements between UK and EU/EEA national authorities.

The MoUs came into effect at the end of the transition period[13].

Users of credit ratings

We are now the UK regulator of UK-registered and certified credit rating agencies (CRAs).

This means that any UK legal entity that wishes to issue credit ratings publicly or by subscription will need to be registered or certified as a CRA with us.

Credit ratings to be used for regulatory use in the UK need to be issued by a registered or certified CRA. Ratings from third countries can also be used in the UK for regulatory purposes, if the issuing CRA used one of two channels (endorsement or certification) provided for in UK legislation: see the CRAR SI.

You can view our list of registered UK CRAs[14], and those from a third country that we have certified. This list will be updated when necessary, and doesn’t replace the Financial Services Register[9].

Find more information on CRAs[15].

Permissions to carry on regulated activity changes

As a result of onshoring legislation, certain permissions in the Regulated Activities Order have now changed or ended.

Bidding in emissions auctions: UK firms with a Part 4A permission at the end of the transition period enabling them to bid in emissions auctions can no longer use it to participate in EEA emissions auctions. They will also not be able to use it in the UK until the relevant legislation to establish a standalone UK regime is passed and permits them to do so.

EEA UCITS: Following the end of the transition period, EEA UCITS are now treated as alternative investment funds (AIFs) as a matter of UK law. The regulated activity in article 51ZA of the Regulated Activities Order has been narrowed in scope to ‘managing a UK UCITS’. However, there are a number of measures in place to provide continuity for firms managing or marketing EEA UCITS in the UK.

UK managers of EEA UCITS funds: We have applied the temporary transitional power (TTP) to allow for the continuity of UK regulatory requirements for UK firms that are the management companies of EEA UCITS. This will apply until either the manager ceases to be the manager of the fund, or until the Transitional Directions expire (whichever is earlier). This change means that, during this period:

• existing UK managers of EEA UCITS don’t need to hold the ‘managing an AIF’ permission in order to continue managing EEA UCITS, and 
• UK managers of EEA UCITS must continue to comply with their Handbook obligations as they stood before the end of the transition period (notwithstanding the changes that would otherwise flow from the change in classification of the fund under UK law)

In the longer term, UK authorised firms will need to apply for the permission of ‘Managing an AIF’, if they aren’t already authorised for the relevant regulated activity and they wish to continue managing that EEA fund.

If firms no longer need the ‘managing a UCITS’ permission, they should apply to have it removed.

More information

Explanatory information from the Government on how MiFID, UCITS and AIFMD are incorporated into UK domestic law:

• Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018: explanatory information[16]
• The Alternative Investment Fund Managers (Amendment) (EU Exit) Regulations 2018: explanatory information[17]
• The Collective Investment Schemes (Amendment etc.) (EU Exit) Regulations 2018: explanatory information[18]

You can also refer to our:

• Transitional direction explanatory note[19]
• Annex A[20] (PDF) – application of the ‘standstill’ in the Transitional Direction to amendments made in Statutory Instruments and Exit Instruments amending technical standards
• Annex B[21] (PDF) – application of the ‘standstill’ in the Transitional Direction to amendments made in our Handbook 

There is more information on the National Private Placement Regime[22].

Contact us

If you have any questions, please contact us[23]