FCA reminds firms to prepare for Brexit, extends transitional powers

The FCA has reminded financial services firms which will be affected by Brexit that they "should have considered if or how they will be affected and what action they may need to take".

Although not every UK-based firm will be impacted by the UK’s withdrawal from the EU, all firms need to complete their assessments of whether Brexit will affect them. The FCA says UK firms that will be affected by Brexit "should have plans in place now to address any risks for your firm".

Financial services expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law, said: "As focus on a no-deal Brexit has again come to the fore with Boris Johnson becoming UK prime minister, the FCA has also been reiterating to firms what they should have done, or be doing, to prepare for a 31 October exit from the EU."

"The regulator has taken the opportunity to remind firms to decide on their approach to existing cross-border customers, encouraging them to follow local law and local regulators’ expectations," said Ashby. "The FCA also mentions again the expectation that firms contact each group of customers affected by Brexit to explain clearly how they will be affected."

"Both of these areas create challenges for firms, in particular where cross-border business in the EU is an accidental side-line, for example due to customers emigrating, as opposed to a commercial focus. The cost of compliance could easily become onerous," he said. "However, firms should use the remaining time to 31 October to check their arrangements against the FCA’s usual tests of treating customers fairly and clear communication and plan for customer queries as best they can."

The FCA's guidance for firms on preparing for Brexit also refers to the temporary transitional arrangements. "This transitional relief allows firms to adjust to any changes to requirements that apply after Brexit but the FCA warns firms this relief does not apply in all cases," said Ashby. "For example the regulator will expect to see evidence of why any MiFID firm is unable to meet the MiFID II transaction reporting requirements by 31 October."

The FCA has also now announced its proposed extension of directions issued using the temporary transitional power so they apply to 31 December 2020 rather than until 30 June 2020, as originally proposed.

Ashby said: "while this extension may well be helpful to firms in terms of their planning and implementation projects it is also important to keep in mind that the FCA still expects firms to prepare for, and to have taken what it describes as 'reasonable steps' to comply from exit day with, changes that apply post-Brexit for which it is not making transitional provision".