Brexit: understanding the transition period

in Financial Services, Regulatory/Compliance, 06.02.2020

On 31 January 2020, following the formal adoption of the withdrawal agreement, the UK officially left the European Union. Now begins the transition period outlined in the Brexit deal, which provides details on how the UK’s exit will unfold. For example, it states that no UK representative can participate in any EU institution, agency or body. It further declares that during the transition period EU law still applies in the UK as if it were a Member State.

So, what does this all mean for business?

Passporting rights: UK entities in Luxembourg

From now until the transition period ends on 31 December 2020, EU laws and regulations still apply to all UK entities wishing to continue their activities in Luxembourg – permitted “on the basis of passporting rights.”

Luxembourg’s financial regulator (CSSF) confirms that the measures originally set up to ensure a smooth transition in the case of a hard Brexit are no longer relevant. More specifically, “the CSSF’s individual decisions granting the 12-month transitional regime to UK entities and all notifications made in that context through the dedicated eDesk portals are lapsing”. Therefore, all dedicated eDesk portals are closed, effective immediately.

The CSSF urges impacted entities to pursue their contingency planning and prepare for the end of the transition period. Regardless of any political developments, companies should take all necessary steps before 31 December 2020 that allow them to continue serving their clients in Luxembourg.

Governance & reporting obligations following the UK’s withdrawal

Since EU law still applies to the UK for now, the European Securities and Markets Authorities (ESMA) has published a statement clarifying governance and reporting obligations.

According to the agency, the reporting and notification obligations under MiFIDII/MiFIR, EMIR, CSDR, AIFMD and MMFR remain mandatory for UK entities. During the transition period, ESMA will continue supervising registered Credit Rating Agencies, Trade Repositories and Securitization Repositories established in the UK during the transition period.

Although the UK has formally left the bloc, ESMA will continue monitoring the situation closely in preparation for the end of the transition period in 11 short months.