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FCA Consults on Contractual Certainty Post-Brexit

On January 8, the UK Financial Conduct Authority (FCA) published a consultation paper (CP19/2) on contractual certainty post-Brexit.

In the lead-up to the United Kingdom’s exit from the European Union (Brexit) on March 29 (Exit Day), the agreement on the United Kingdom’s withdrawal remains to be ratified by the UK Parliament. If ratification fails, this would result in a so-called “no-deal Brexit,” meaning that the UK would leave the EU without having agreed on any transitional arrangements, and any firms or fund managers based in the European Economic Area (EEA) passporting their services or products into the UK would lose their permission to do so on Exit Day.

Given the continuing political uncertainty surrounding Brexit, CP19/2 sets out the FCA’s proposals to implement the so-called financial services contracts regime (FSCR) so that EEA firms can fulfill their existing contractual obligations in the UK in the event of a no-deal Brexit. The FSCR works alongside the temporary permissions regime (TPR), allowing for the continuity of existing contracts for EEA firms that either do not submit notifications to enter the TPR, or are unsuccessful in securing, or do not apply for, full UK authorization through the TPR route .

The FSCR will apply automatically to such firms, allowing them, for a limited period, to continue to service UK contracts entered into before Exit Day or before exiting the TPR, provided that they meet the conditions of the FSCR. These conditions are set out in chapter 2 of CP19/2.

The FSCR will be time-limited depending on the type of regulated activity being performed. It will apply for a maximum of five years for all contracts except insurance contracts, for which there is a maximum of 15 years.

Unlike the TPR, the FSCR does not allow EEA firms to take on new business after Exit Day. Similarly, EEA-based managers, depositaries and trustees of UK-authorized funds cannot continue to manage or provide services to these funds after Exit Day under the FSCR. These firms and fund managers will need to make use of the TPR.

Comments can be made on CP19/2 until January 29. The FCA intends to provide feedback and publish final rules shortly before Exit Day.

CP19/2 is available here.

©2019 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
Partner

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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