Regulator could ask to see Brexit plans

Britain’s decision to leave the European Union at the end of last week has left a number of questions unanswered, including whether firms will face regulatory scrutiny over contingency plans.

“It is likely that the UK’s regulators will be asking firms to share their Brexit contingency plans and impact analysis,” law firm Allen & Overy said in a call with more than 837 participants following the leave vote on Friday. “Although the terms of the UK’s future relationship with the EU will not be known in the short (or possibly medium) term, it would be seem sensible to make certain assumptions as regards the likely outcome…and to develop plans according to those assumptions.”

Allen & Overy outlined two assumptions that firms should consider when drafting contingency plans: First, that the UK government will continue to promote London as a centre for financial services and to permit EU banks and market infrastructure providers to continue their UK activities with as little disruption as possible; and second that the EU will not permit the UK to “cherry-pick freedoms” and firms’ passporting rights into the European Economic Area and from the EEA into the UK may lapse two years after the UK Government triggers the exit period.

Shortly after the referendum result, the UK regulator, the Financial Conduct Authority said in a statement that “firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.” The FCA has not yet commented on whether firms will be required to share contingency plans.

John Verwey, special regulatory counsel in Proskauer’s corporate practice, said that while the UK regulator may not require firms to draft contingency plans in the short-term, when the UK’s position is decided, it is likely that it will want to see the plans firms are making in light of these new arrangements.