Countdown to Brexit: 45 days – Financial Services in a no-deal Brexit

The Financial Services (Implementation of Legislation) Bill 2017-19 had its ‘second reading’ yesterday – 11 February 2019.

The Bill enables the Treasury to make corresponding or similar provisions in UK law to match the upcoming EU financial services legislation in the event of a no-deal Brexit.

Currently, most financial services regulation is made at EU level.  It is either directly applicable or transposed into domestic law by ‘secondary legislation’.

In preparation for leaving the EU, the European Union (Withdrawal) Act 2018 – EUWA – incorporates all EU law on the day of exit into UK law so that existing regulation continues to have effect after Brexit.

If the UK ratifies the Withdrawal Agreement, it will enter an implementation period until 31 December 2020 – during which EU law will continue to apply.  During this period the UK will continue to implement financial services regulation through secondary legislation.

However, if the UK leaves the EU with no deal, there will be no mechanism through which financial services regulation can be updated without the need for primary legislation.

There are several items of EU financial services legislation which have either been adopted by the EU but will not be implemented by the time the UK leaves – or that are currently in negotiation and may be adopted shortly after.  There are at least 16 items listed that are referred to as “in-flight files”.  The Bill would give the Treasury the power to create corresponding or similar UK regulations, subject to any adjustments appropriate to the UK’s new position outside the EU.

The power is subject to the same restrictions on scope as the correcting power in the EUWA and may only be used for up to two years after exit day.  Statutory instruments made under the power in this Bill will be subject to the affirmative resolution procedure, which requires a vote in both Houses. The Treasury will be required to produce six-monthly reports on the use of the power.

The Bill completed its stages in the House of Lords on 6 February 2019 – and had its ‘First Reading’ in the House of Commons on the same day.  ‘Second Reading’ is set to be on Monday 11 February 2019.

The Lords raised various issues at Committee Stage – which the Government has taken on board – moving amendments with the following effects:

To restrict the adjustments that the Treasury can make.  The Treasury will only be able to make policy changes to those files that were not settled while the UK was an EU member, and as long as the changes are not “major”.

For those files that the UK fully negotiated as a Member State, the adjustments will be limited to fixing deficiencies arising from the UK’s exit (as happens under the EUWA).

To require more detailed and frequent reporting from the Treasury on its proposals and use of powers.

To extend these reporting requirements to the financial regulators (Bank of England, PRA, FCA), where the powers are sub-delegated to them.

To add proposed regulations to facilitate sustainable investment to the list of in-flight EU files that the Bill refers to.

Contact us at for detailed impact assessments of the following In-flight files, including:

  • Markets in Financial  Instruments Regulation
  • Bank Recovery and Resolution Directive II
  • CCP Recovery and Resolution
  • Covered Bonds Regulation and Directive
  • Capital Requirements Regulation II (CRR II) & Capital Requirements Directive V (CRD V)
  • Cross Border Distribution of Funds Regulation & Directive
  • Central Securities Depositories Regulation
  • European Market Infrastructure Regulation 2.2
  • EMIR REFIT (Regulatory Fitness and Performance Programme)
  • European Supervisory Authorities Review
  • Investment Firms Review
  • Prospectus Regulation
  • Securities Financing Transactions Regulation
  • SME Growth Markets Regulation
  • Sustainable Finance: Low Carbon Benchmarks
  • Sustainable Investment Regulations

Financial services if there is no-deal

The UK’s financial services sector is the largest in Europe and is deeply connected with it.  An estimated 10% of its revenues come directly from the EU, making it the third most-reliant sector on the EU market on that measure, after oil and gas at around 40% and manufacturing at around 20%.

All the main European banks and insurance companies operate in London, as UK companies do in Europe, under a system of ‘passports’.

Any company authorised in any EU Member State can operate in any other EU Member State under its passport.  It is the sudden loss of this passport without other arrangements in place that is the biggest potential problem arising out of ‘no deal’.

A PwC study concluded that the loss of mutual market access in financial services would be detrimental to both sides, although it would hurt the UK more. It estimated that no access would make the UK economy 1.3% smaller than otherwise by 2030, and 0.3% smaller for the EU27.

The impact of no deal on financial services was estimated by the Government at around -9% of economic activity for the industry in the long run.

The Government has published a series of no-deal notices and guidance for financial services.  Contact for further information in the impact of these notices.


We previously reported on the concerns expressed by Parliament and concerned citizens groups into the use of secondary legislation rather than the full scrutiny process in the scramble to complete all the necessary legislation before Brexit: Brexit – Henry VIII – and Statutory Instruments

Full Parliamentary briefing: