Guidance

The Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019: explanatory information

Published 9 January 2019

1. Context

The European Union (Withdrawal) Act 2018 (EUWA) repeals the European Communities Act 1972 on the day the UK leaves the EU and converts into UK domestic law the existing body of directly applicable EU law. The purpose of the EUWA is to provide a functioning statute book on the day we leave the EU.

The EUWA also gives Ministers powers to make statutory instruments (SIs) to prevent, remedy or mitigate any failure of EU law to operate effectively, or any other deficiency in retained EU law. We refer to these contingency preparations for financial services legislation as ‘onshoring’.

HM Treasury is using these powers to ensure that the UK continues to have a functioning financial services regulatory regime in any scenario.

This SI is part of the wider work the government is undertaking to prepare for the UK’s withdrawal from the EU. It is not intended to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition. The changes made in this SI would not take effect on 29 March 2019 if, as expected, we enter an implementation period.

2. Notice

The accompanying draft SI is intended to provide Parliament and stakeholders with further details on our approach to onshoring financial services legislation. Technical aspects of the proposal may change before the final instrument is laid before Parliament.

3. Policy background and purpose of the SI

3.1 What does the underlying EU regulation and UK law do?

The Financial Services and Markets Act 2000 (Disclosure of Confidential Information) Regulations 2001 (the Disclosure Regulations) set out the gateways that allow UK regulators to share confidential information, including with domestic, EEA and third-country regulatory and supervisory authorities. This legislative framework ensures that this information is subject to robust protections, and allows the regulators to disclose information so that, for example, they can discharge their public functions or undertake criminal proceedings.

These protections on the disclosure of confidential information largely derive from EU directives and regulations. In general, these protections fall into three categories relating to: professional secrecy obligations; limitations on how regulators may use confidential information; and restrictions on onwardly disclosing information to third countries, particularly when the information originates from a European Supervisory Authority (ESA) or EEA regulator. The Disclosure Regulations transpose these provisions which appear in various EU directives and regulations into one piece of domestic legislation.

Some provisions in the Disclosure Regulations provide additional protections to the general gateways for disclosing confidential information by imposing further conditions on how certain information may be disclosed. The Disclosure Regulations also carve out certain types of information, or ‘single market information’, which relate to information received by the regulators when undertaking their functions in respect of certain EU directives and regulations. These provisions impose additional restrictions in respect of sharing single market information, but this regime currently allows UK regulators to freely disclose information with EEA regulators and ESAs without the need to enter into cooperation agreements.

Current legislation also allows UK regulators to share single market information with third-country regulatory and supervisory authorities to help them carry out their functions. However, in certain cases this is only permitted after the UK regulators have entered into a cooperation agreement and upon them being satisfied that the third-country regime for the protection of professional secrecy is equivalent. In addition, when a UK regulator wishes to onwardly disclose information that originated from an EEA regulator or ESA to a third-country regulatory authority, it must seek the consent of that EEA regulator or ESA before doing so.

3.2 Deficiencies this SI remedies

In a no deal scenario, the UK would fall outside the EU’s common regulatory and supervisory framework for financial services. Given that many of the provisions in the existing domestic legislation assume that the UK is a member of the EU’s single market for financial services, parts of the Disclosure Regulations will become deficient when the UK withdraws from the EU. In particular, failure to amend the Disclosure Regulations would mean that the UK would continue to afford additional protections that only apply to EEA member states, which would be inappropriate once the UK is no longer part of the EU’s common regulatory and supervisory framework.

This SI does not intend to make substantive policy changes, but addresses these deficiencies to ensure that the legislation continues to operate effectively at the point of exit, and to reflect the UK’s new position outside the EU. Importantly, changes introduced by this SI will ensure that the UK continues to have robust protections for how the UK’s financial services regulators disclose confidential information with other regulatory and supervisory authorities.

Changes introduced by this SI include:

Requirement to enter into cooperation agreements with EEA member states

As outlined above, UK regulators are currently able to share confidential information freely with EEA regulatory and supervisory authorities without the need to enter into cooperation agreements. Once the UK is outside the EU’s single market for financial services, it would be inappropriate to continue to share information in this way with EEA member states as different restrictions are in place when sharing confidential information with other third countries. As such, this SI makes amendments to ensure that the same restrictions and protections for how UK regulators disclose confidential information with third-country authorities apply to EEA member states after exit.

In practice, this means that the UK will have to enter into cooperation agreements with EEA states in some cases before exit day so that both UK and EEA regulatory and supervisory authorities can continue to share confidential information with each other. This approach ensures that the UK will continue to have a robust legislative framework for how UK regulators disclose confidential information with other authorities, and treats the EEA equally to other third countries under this framework.

Removing requirements for seeking the consent of an ESA or EEA regulator before onwardly disclosing confidential information in cases where there is no equivalent provision in respect of third countries

In most cases, if a regulator currently wishes to onwardly disclose confidential information that originated from an ESA or EEA regulatory authority, it must seek the consent of that ESA or EEA regulatory authority before onwardly disclosing such information. In general, these obligations only exist in respect of ESAs and EEA regulators. Where this is the case, a UK regulator does not need to seek the consent of a third country in this same way. It would therefore be inappropriate to maintain these obligations in UK legislation after exit day where they do not apply to third countries given that such requirements do not generally exist when onwardly disclosing information that originates from a third country regulatory authority.

As a result, this SI removes these consent provisions from UK legislation. The UK regulators’ internal staff guidance will stipulate that they should have due regard to any requests from an ESA or EEA regulator in relation to obtaining their consent before onwardly disclosing information. After exit, such requests may be stipulated in any future cooperation agreement between the UK and the EEA.

Amending references to EU directives and institutions

The Disclosure Regulations currently contain references to EU directives and EEA regulatory authorities, and define certain terms on the basis that the UK is a member of the EU. In order to ensure that the legislation functions effectively and is clearly defined after exit, the SI amends or removes these references to reflect the UK’s new position outside the EU. For example, references in the Disclosure Regulations to information received under certain EU directives and regulations are amended and redefined so that they instead refer to the relevant UK versions of that legislation after exit day.

3.3 Relevant Rulebook and Binding Technical Standard changes

There are no Rulebook or Binding Technical Standard changes planned in this area.

3.4 Stakeholders

This SI does not have any direct impact on firms as it mostly affects the UK’s financial services regulators. HM Treasury has been in frequent contact with the regulators during the policy development of this SI to ensure that it functions appropriately.

HM Treasury has engaged with industry bodies where possible to ensure awareness of these changes. As already noted, the intention of this SI is not to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition to this position.

This SI does not include provisions that may be necessary to ensure Gibraltarian financial services firms’ continued access to UK markets in line with the UK Government’s Statement in March 2018, and other provisions dealing with Gibraltar more generally. Where necessary, provisions covering Gibraltar will be included in future SIs.

4. Next steps

HM Treasury plans to lay this instrument before Parliament before exit.

5. Further information

Read HM Treasury’s approach to financial services legislation under the European Union (Withdrawal) Act 2018.

6. Enquiries

If you have queries regarding this instrument, email FSlegislationEUWA@hmtreasury.gov.uk.