The Brexit Freedom Bill: What does it mean for the financial services industry?

The Bill will, however, end the special status that retained EU law has on the UK statute books and re-categorise all remaining retained EU law as ‘assimilated law’, in each case by the end of 2023.

How does it affect the financial services industry, which is still analysing the FSM Bill? 

A deadline for revocation?

If the FSM Bill “subsists” by the end of 2023, and current noise suggests that it will be passed by April/May next year, the Brexit Freedoms Bill won’t require the financial services legislation listed in Schedule 1 to the FSM Bill to be revoked by the end of December 2023.   Neither does the deadline to revoke apply to any rules of the PRA, FCA or BoE or to any PSR generally applicable requirements or directions of general application.

Whilst the position for each of the pieces of legislation specifically listed in Schedule 1 of the FSM Bill is clear, there may be uncertainty at the margins as to what is or is not in scope of the deadline to revoke under the Brexit Freedoms Bill.  This uncertainty stems from Part 5 of Schedule 1 to the FSM Bill which contains a form of sweep up provision for EU-derived legislation not specifically otherwise listed “so far as relating to financial services or markets”.  While some guidance is provided as to what “relating to” means, in practice there may well be areas of uncertainty.

In all other areas, the deadline for revocation may also be extended until 2026. More precisely, until the 10th anniversary of the referendum - 23 June 2026.  The revocation of legislation under the Brexit Freedoms Bill will also not affect an amendment made by the revoked instrument to another enactment.  The impact of this preservation of amendments remains to be explored and will have to be considered on a case by case basis.

The rest of the Bill does apply to all retained EU law, including in the area of financial services. 

Back to domestic principles of interpretation

At the end of 2023, the Bill will repeal all directly effective rights, powers, liabilities, restrictions, remedies and procedures that were saved by Section 4 of the European Union Withdrawal Act 2018 (EUWA).  The explanatory notes accompanying the Bill state that the rationale behind this provision is to ensure that it is no longer possible for EU case law to override domestic legislation. However, Article 13 grants the relevant national authority (Minister of the Crown etc) the power to reproduce sunsetted rights, powers, liabilities etc., in other words a power to codify any such rights and obligations.  Such codified retained rights etc would be subject to domestic principles of interpretation but the provision provides that “a restatement... may, if the relevant national authority considers it appropriate, itself produce an effect that is equivalent” to the effects of EU interpretive principles. The stated purpose of this is to enable the same policy or practical outcome to be achieved as the law would have achieved had such interpretive effects continued to apply. 

The Bill also provides for the abolition of the supremacy of EU law and the general principles of EU law which still currently impact how we interpret retained EU law.  This will also take place at the end of 2023.  The relevant national authorities are granted the power until 23 June 2026 to specify that certain domestic enactments are to be read in a way which is “compatible” with retained EU law and subject to retained EU law to the extent “incompatible”.  Absent any use of the power to require compatibility with retained EU legislation, the Bill provides that the new priority rule will be that standard domestic legislation trumps retained EU legislation.

Any retained EU law remaining on the UK statute book on 1 January 2024, including any relating to financial services, will be re-characterised as “assimilated law”.  This is designed to reflect the fact that as discussed, the interpretive effects of EU law will then no longer apply. 

Decoupling the UK courts

The Bill makes a number of amendments to the EUWA concerning the interpretation and effect of retained EU law, the role of the courts and retained EU case law.  Amongst other changes, the amendments prescribe a new test to be applied by higher courts when considering whether to depart from retained EU case law or whether to depart from retained domestic case law, establish a new reference procedure enabling a lower court which is bound by retained case law under section 6 EUWA to refer a point of law to a higher court (which is not so bound) to decide and a new procedure for a law officer of the UK Government or the devolved administrations to refer a point of retained case law to a relevant higher court and certain rights of intervention.

New powers for government to amend retained EU law

The Bill also provides and modifies a number of powers relating to the ability of a Minister of the Crown (or similar) to amend retained EU legislation or section 4 EUWA rights.  It proposes to treat all retained direct EU legislation as equivalent to domestic secondary legislation and subject to amendment in the same way as secondary legislation.  It creates a “suite of powers that allow retained EU law to be revoked or replaced, restated or updated and removed or amended to reduce burdens” (whilst removing it from the category of retained EU law).

What now for the financial services industry?

There are obviously questions to explore as industry considers the Bill further.  For many of the questions, we will have to wait for clarification from the relevant national authorities around how they expect to use the powers granted to them.  What we do know is that industry is now facing two policy rollercoasters: how the increased powers for the regulators, as a result of the FSM Bill, will be exercised and how the FSMA-ification of financial services legislation will be managed and now, how the Brexit Freedoms Bill and the domestication of rules of interpretation might also impact the industry.