With the U.K. set to formally leave the European Union (EU), financial sector regulators are gearing up to accommodate the shift.
As of midnight on Jan. 31, the U.K. will no longer officially be part of the EU, launching a transition period that is set to run until the end of 2020, giving time for citizens and businesses to adapt to the change.
Once the U.K. formally exits the EU, the two sides will set out to negotiate the terms of their ongoing relationship. The transition period could be extended for up to two years if both sides agree by July 1, 2020.
In the meantime, European law will continue to apply to the financial sector during the Brexit implementation period, the U.K.’s Financial Conduct Authority (FCA) said.
Among other things, that means that existing investor protections, transaction reporting requirements and passporting arrangements will remain in effect for financial firms and investment funds.
“The implementation period gives firms a period of certainty while negotiations are continuing on our future relationship with the EU,” Andrew Bailey, CEO of the FCA, said in a statement.
Bailey noted that the FCA intends to work with the financial industry, the government, the Bank of England and other regulators “to ensure the financial services industry is ready for the end of 2020.”
The industry should start that work immediately, he suggested.
“As things develop during the year, all financial services firms should consider how Brexit will impact their business and what action they need to take to be ready for Jan. 1, 2021 to minimize risks to customers,” Bailey said.
Similarly, the European Central Bank (ECB) said that banks will now need to implement their Brexit plans.
“We will work hard to ensure Brexit causes as little disruption as possible for the citizens, employers and financial markets,” said ECB president Christine Lagarde.
Among other things, the ECB and the Bank of England have adopted a currency swap arrangement designed to reduce possible sources of stress in the financial system. They’ve also taken steps to ensure cooperation for banking supervision, the ECB noted.