PRA and FCA Issue Letter on Preparations for End of Brexit Transition
PRA sent a letter to specific firms to request information about their operational readiness to implement a negative or zero bank rate. Firms are requested to complete the data template (Appendix) by November 12, 2020. In addition, PRA and FCA jointly issued a letter to help ensure that firms and their clients are ready for a range of scenarios at the end of the transition period of the withdrawal of UK from EU. The letter highlights that the final steps by individual firms are required to ensure preparedness for the end of the transition period. These actions will vary among firms and may differ between UK-incorporated subsidiaries and branches of overseas firms. With respect to the final preparations for the end of the transition period, the letter sets out key focus areas for firms, including wholesale banking business and contracts, data, trading venues, payments, provision of retail banking services, and others.
The following are the key highlights of the joint letter from PRA and FCA on preparations for the end of the transition period:
- Where necessary, firms should continue to take steps to facilitate the continuity of business and contracts. Firms should proactively engage with affected clients to complete repapering/on-boarding and novate existing trades where necessary to ensure clients can manage risks related to lifecycle events. Firms should also ensure that they have fully considered the impact on each client and whether the proposed changes, including any transfer of business if applicable, are in the best interests of each client.
- In the absence of a decision by EC on UK data protection adequacy, the use of standard contractual clauses in relevant contracts is one of the available ways that the European Economic Area firms can comply with the cross-border personal data transfer laws of EU, after the expiry of the transition period. Firms may need to consider whether contracts involving the transfer of personal data to their firms from the European Economic Area need to be updated to comply with EU requirements or to consider other appropriate measures. This could include reviewing the position for EU vendors or third parties on which services of firms rely.
- Firms should consider how they will continue to meet their trading obligations in both EU and UK under a range of scenarios at the end of the transition period, along with the implications of this for their clients. Firms should also discuss their plans and assumptions with FCA, particularly if a firm plans to make any changes to its current systems and processes.
- UK will retain access to the Single European Payment Area (SEPA) schemes after the end of the transition period, subject to its continued compliance with the established participation criteria. Firms should continue to take all reasonable steps to avoid disruption to payments. This includes ensuring that the required information is included on SEPA payments, where necessary, and that customers are aware of the need to provide the information.
- Continued actions of UK banks to prepare their EU subsidiaries will enable their provision of services to many EU customers after the end of the transition period. However, the ability of UK banks to continue providing some services to customers resident in EU will be determined by national regimes. Depending on the national regime in place, the ability of UK banks to provide certain services to EU-based customers may be impaired. If firms have customers in the European Economic Area, they should have plans in place on the approach to servicing existing contracts with them. Firms should also continue to take the necessary steps to manage any remaining operational risks.
Keywords: Europe, UK, Banking, Securities, Insurance, Brexit, Temporary Transitional Power, Operational Risk, Brexit Transition, PRA, FCA
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