Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
Speaker: Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
Speaker: A heads up to our listeners that this episode is being recorded remotely, therefore the sound quality may vary.
Speaker: Thank you for listening.
Speaker: Welcome to the latest in our RegTalks podcast series.
Speaker: In this series, we are featuring a variety of different topics and market developments that are currently trending in the markets and securities world.
Speaker: Now it's time for us to look at the progress of Brexit since the transition period for the UK, leaving the European Union, ended on 31st of December 2020.
Speaker: To do this, we have two colleagues from HSBC's Security Services Regulatory Product Team, Henry Ration, Director, Regulatory Outlook, and Jennifer Lowe, Senior Product Manager.
Speaker: Henry, over to you.
Speaker: Thank you, Gabriella, and good afternoon, Jennifer.
Speaker: Hello, good morning, Henry.
Speaker: Jennifer, can you explain to us, please, where we're up to on the process of Brexit?
Speaker: Yes, of course, Henry.
Speaker: As we know, the transition period ended on the 31st of December 2020.
Speaker: And in the months before the transition period ended, the UK converted into law any existing EU regulations that had direct effect in the UK at the end of the transition period.
Speaker: Now, during this onshoring process, the UK in some cases made technical and other amendments to the legislation
Speaker: that it would work in the UK after Brexit.
Speaker: An EU directive applying before the 31st of December 2020 already formed part of UK law, so did not need onshoring.
Speaker: Now, before the transition period concluded, on the 24th of December, the EU and UK agreed on the terms of the Trade and Cooperation Agreement, or TCA.
Speaker: Although this agreement was regarded as a
Speaker: major political turning point, the TCA is primarily a trade agreement.
Speaker: It does not address financial services in any detail and provides no new arrangements for financial services to replace the existing EU passports.
Speaker: But to this end, the TCA included a commitment to agree a memorandum of understanding between the EU and the UK by March 2021.
Speaker: that should establish a framework for structured regulatory cooperation of financial services.
Speaker: And following on from further EU-UK discussions, the UK government announced on 26th of March this year that technical discussions on the text of the Memorandum of Understanding had concluded.
Speaker: It added that the MOU once signed would establish the joint UK-EU Financial Regulatory Forum.
Speaker: serve as a platform to facilitate dialogue on financial services issues.
Speaker: Now, the draft MOU has not yet been publicly issued, and there's no indication so far of the EU granting any general access by UK firms to EU markets.
Speaker: So, accordingly, for the time being, market participants are really limited to using this information that has been provided so far by regulators in both the EU and UK.
Speaker: And it is still not clear what the path towards any long-term equivalent in financial services really looks like at the moment.
Speaker: Thanks, Jennifer.
Speaker: I understand, however, that there are some permissions that the European Union has granted temporarily to the United Kingdom.
Speaker: Yes, Henry, there certainly are.
Speaker: There are certain time-limited provisions that the EU has adopted to mitigate the impact of the end of the Brexit transition period.
Speaker: And for the most part, these provisions are still very much in effect.
Speaker: For example, the EU has recognized any authorized UK-based CSD, effectively Euroclear UK and Euroclear Ireland, until 30th of June 2021.
Speaker: Irish security settlements already moved from Euriclare, Ireland to Euriclare Bank earlier this year on the 15th of March.
Speaker: And UK-based authorized central counterparties, or CCPs, are recognized by the EU until 30th of June, 2022.
Speaker: Also, in February, the EU Commission issued a draft decision paving the way for data transfers between the EU and UK,
Speaker: after the current temporary adequacy arrangement expires on the 30th of June.
Speaker: Now, approval by representatives from various EU member states are still needed to finalize that decision.
Speaker: However, aside from these few time-limited provisions and the adequacy data decision on transfers, as I've just mentioned now, the EU has not granted equivalence for UK financial services.
Speaker: But Henry, I believe you've been looking at the impact of all of this on the distribution of funds from the UK to the EU.
Speaker: What's the current state of that moment?
Speaker: Oh, yes, Jan, I have.
Speaker: It's worth noting that a limited range of permissions by the European Union to the UK has already had wide-ranging effects for investment funds.
Speaker: In particular, EU passporting rights for financial services are no longer available for UK firms, meaning that, first, UK alternative investment fund managers can no longer market UK APES under the marketing passport.
Speaker: Second, UK alternative investment fund managers can no longer manage European Economic Area APEs.
Speaker: And thirdly, UK USIPs are now treated in the European Economic Area as non-EEA funds.
Speaker: So driven by these limitations post Brexit, the UK authorities and industry are currently assessing how to increase the attractiveness and competitiveness of its UK investment funds regime, recognizing the requirements of cross-border marketing and acceptable tax treatment.
Speaker: To this end, there's been a UK funds call for input consultation on issues across both tax and regulation, which closed on the 20th of April 2021.
Speaker: and there's a UK long-term assets fund consultation closing on the 25th of June this year.
Speaker: In addition, to help UK firms adapt to their new requirements, the Treasury, the UK Treasury, gave UK financial regulators the power to make transitional provisions to financial services legislation for a temporary period.
Speaker: Temporary transitional power, TTP, applies on a broad basis until 31st of March, 2022.
Speaker: During this limited period, firms can continue to comply with their pre-existing requirements while preparing for full compliance with the onshore United Kingdom regime, except for some regulations including parts of MIFID II, EMIR Securities Financing Transactions Regulation and Market Abuse Regulation, where compliance had to be immediate.
Speaker: Jen, you've got more on what the UK is allowing the European Union firms to do, I understand.
Speaker: temporary provisions for EU firms are still in effect.
Speaker: These are the UK's temporary permissions regime, the TPR, and temporary marketing permissions regime, the TNPR, which effectively allow EEA-based firms and funds that were passporting into the UK at the end of the transition period to continue operating in the UK for up to three years until the 31st of December, 2023.
Speaker: But firms had to apply before the end of the transition period.
Speaker: So during this time-limited period, it's expected that EA firms will seek full authorization in the UK and funds will need to, at a minimum, notify the FCA under the national private placement regime.
Speaker: I think it's also important to keep in mind that the UK regulatory landscape post the temporary permissions regime is still very much unknown.
Speaker: the UK continues to work through its pipeline of EU regulations.
Speaker: And as you may recall during June last year, the UK Treasury announced areas where the UK planned not necessarily to follow the EU rules and therefore divergence may occur in certain areas.
Speaker: For example, areas such as the CSDR settlement discipline regime, ESG disclosures, areas of solvency 2, digital and PRIPS.
Speaker: UK proposals in these areas are being developed by UK authorities in discussions with market infrastructures and institutions.
Speaker: However, while there would be some differences in the UK approach, these overall objectives are so far expected to be broadly the same.
Speaker: Well, thanks, Jennifer.
Speaker: Clearly, there's a lot to take in on this complex subject, and it evolves week by week.
Speaker: Everybody needs to watch developments on both sides of the channel on Morsh.
Speaker: We are publishing a paper on the post-Brexit progress on our website.
Speaker: As always, if clients do have questions, please do follow up with your client services manager.
Speaker: Jennifer, for now, thank you very much.
Speaker: And Gabriella, back to you.
Speaker: Thanks so much, Jennifer and Henry.
Speaker: This was quite enlightening also for me.
Speaker: We hope that you enjoyed this overview in the wake of the UK's departure from the EU.
Speaker: Stay tuned for more from our podcasts, especially on CSDR and IBOR, as we explore more trends in the coming months.
Speaker: Thank you for listening today.
Speaker: This has been HSBC Global Viewpoint, Banking and Markets.
Speaker: For more information about anything you've heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.
