The European Commission has published a Communication on finalizing preparations for the withdrawal of the U.K. from the EU on November 1, 2019. The Commission stresses the likelihood of a no-deal Brexit on October 31, 2019 and asks all stakeholders to take action now to finalize their plans for the situation, noting that the contingency measures that are in place can only mitigate against some of the more significant disruptions. The Commission warns that a further delay to the date that the U.K. exits the EU should not be assumed, in that a delay may not be requested by the U.K. government nor granted by the EU.

For the financial services sector, the Commission states that additional EU contingency measures are not warranted, indicating that no further equivalencies, beyond those previously in place for scheduled U.K. exit dates, will be established. If the U.K. leaves the EU without a withdrawal agreement, the EU has put in place the following contingency measures:

• granted temporary equivalence for U.K. CCPs until March 30, 2020;
• provided for temporary permission for central securities depositories to continue providing notary and central maintenance services to EU operators, which will expire on March 30, 2020; and
• provided for EU market participants with outstanding derivatives contracts to replace their U.K. counterparties with EU counterparties within 12 months of Brexit without impacting on their preferential prudential treatment.

Other derogations and temporary permission regimes are available at national level and various exemptions for cross-border business are established in relevant financial services legislation (e.g. reverse solicitation or the doctrine of characteristic performance), although these are not mentioned in the communication.

The Commission states that it will continue to monitor and assess the financial markets until after the withdrawal date and take appropriate action where necessary based on EU legislation, including taking into account the incoming regulatory and supervisory requirements for third-country CCPs under the European Market Infrastructure Regulation (known as EMIR 2.2). EMIR 2.2 has not yet entered into force.

View the Communication.

View the press release and links to related materials.

View details relating to Brexit preparations by the EU and the U.K.

View details of EMIR 2.2.

You may like to view our client note, "On the Existence of a Pan-European Reverse Solicitation Regime Under MiFID II, and its Importance on a 'Hard' Brexit", February 2019.

You may like to view our client note, "Continuity of Contracts and Business on a "Hard" Brexit: Human Rights and Reverse Solicitation to the Rescue!", October 2017.

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