The government is preparing contingency plans for the financial services sector in the event of a ‘no deal’ Brexit
In a paper released this morning, Treasury officials pledge that ‘the government will ensure that a workable legal regime is in operation whatever the outcome of negotiations'.
Although seeking to assure financial service professionals that an implementation period will be agreed between the UK and the EU allowing current regulatory legislation to remain in place until at least the end of 2020, the government is allowing for the possibility that negotiations will fail.
‘While the government has every confidence that a deal will be reached and the implementation period will be in place, it has a duty to plan for all eventualities, including a “no deal” scenario,’ says the Treasury, adding: ‘The government is clear that this scenario is in neither the UK’s nor the EU’s interest, and we do not anticipate it arising.’
Officials have already begun work on Statutory Instruments (SIs) that will allow UK regulators to take on functions currently performed by EU bodies.
The document states: ‘In leaving the EU without a deal, many functions currently carried out at an EU level would cease to apply to the UK and would need to be provided for in the UK’s regulatory regime.
‘The Treasury’s onshoring work involves allocating these EU functions to the appropriate UK bodies. In this scenario, the Treasury proposes to follow the model outlined in FSMA and allocate functions to UK regulators in a way which is consistent with the responsibilities already conferred on them by Parliament, thus providing certainty and continuity for firms.’
Acknowledging the heavy workload involved in planning for a no deal scenario, the Treasury insists it will not be wasted if the desired outcome of negotiating a ‘deep and special’ relationship with the EU is achieved.
‘The immediate aim of this onshoring work is to prepare for the unlikely scenario in which the UK leaves the EU with no agreement and no implementation period. However, we expect much of this onshoring work, augmented by the outcome of further negotiations with the EU, will contribute towards the legislative framework needed to deliver a smooth and orderly transition to the new regime that will be agreed as part of the Future Economic Partnership,’ it says.
Despite discussing plans for a no deal scenario in some depth, the Treasury concludes by suggesting the financial services market should plan for a transition period and negotiated settlement.
‘Firms should continue to plan on the assumption that an implementation period will be in place from 29 March 2019 – and, therefore, that they will be able to trade on the same terms that they do now until December 2020. They will need to comply with any new EU legislation that becomes applicable during this period.’
Report by Rob Munro