Newsalert - Preparing for the withdrawal of the UK from the EU on 30 March 2019: Implementing the European Commission’s Contingency Action Plan – Financial Services

The European Council calls for work on preparedness at all levels for the consequences of the United Kingdom’s withdrawal to be intensified, taking into account all possible outcomes.

Given the continued uncertainty surrounding the ratification process on the side of the United Kingdom, and in line with the Conclusions of the European Council (Article 50) on 13 December, on 19 December the European Commission has proceeded with the implementation of its Contingency Action Plan, has adopted all the legislative proposals and delegated acts which it announced in that Action Plan.

The Commission calls on the European Parliament and on the Council to adopt the proposals as a matter of urgency. Member States should accelerate their work to prepare for all scenarios for the United Kingdom’s departure.

The Action Plan includes regulations on specific sectors, including “Financial services”.

If the Withdrawal Agreement is not ratified, financial operators established in the United Kingdom will lose, as of the withdrawal date, the right to provide their services in the EU27 Member States under the EU financial services passports. UK operators and their counterparts in the EU27 must therefore take action to comply with Union law in all scenarios and in time for the United Kingdom’s withdrawal, as the Commission has indicated in the stakeholder notices which it published in this area.

The Commission has concluded that only a limited number of contingency measures is necessary to safeguard financial stability in the EU27. These measures mitigate financial stability risks only in those areas where preparedness actions from market operators alone are clearly insufficient to address these risks by the withdrawal date. The Commission has therefore adopted the following acts that will apply from the withdrawal date if the Withdrawal Agreement is not ratified:

• A temporary and conditional equivalence decision for 12 months to ensure that there will be no disruption in central clearing of derivatives. This will allow ESMA to recognize temporarily central counterparties currently established in the United Kingdom, allowing them temporarily to continue providing services in the European Union. The Commission has concluded that EU27 companies need this time to have in place fully viable alternatives to UK operators.

• A temporary and conditional equivalence decision for 24 months to ensure that there will be no disruption in services provided by UK central securities depositories. It will temporarily allow them to continue providing notary and central maintenance services to operators in the European Union. This will allow EU27 operators that currently have no immediately available alternative in the EU27 to fulfil their obligations under EU law.

• Two Delegated Regulations facilitating novation, for a fixed period, of certain over-the-counter derivatives contracts with a counterparty established in the United Kingdom to replace that counterparty with a counterparty established in the European Union. This allows such contracts to be transferred to an EU27 counterparty while maintaining their exempted status and thus not becoming subject to clearing and margining obligations under the European Market Infrastructures Regulation (EMIR). Such contracts, pre-dating EMIR, are exempted from EMIR requirements. This act will ensure that a change of counterparty will not change that exempted status.

In all sectors of financial services, firms should continue to take all the necessary steps to mitigate risks and ensure that clients continue to be served. Firms should actively inform clients about the steps they have taken and how they are implementing them. For their part, clients in the European Union of UK firms need to prepare for a scenario in which their provider is no longer subject to EU law.

The Commission calls on the co-legislators to ensure the adoption of the proposed legislative acts so that they are in force by the date of the withdrawal of the United Kingdom. The Commission also highlights to the European Parliament and to the Council that it is important for delegated acts to enter into force as rapidly as possible.

Finally, the Commission reiterates its calls on Member States to remain united also as regards contingency action, refraining from bilateral arrangements that would be incompatible with EU law and which cannot achieve the same results as action at the EU

level. Such arrangements would also complicate the establishment of any future relationship between the EU and the United Kingdom.

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