On 7 November 2018, HM Treasury published a draft of The Bank of England (Amendment) (EU Exit) Regulations 2018 together with a draft explanatory memorandum.
The amendments to UK domestic law proposed in the draft Regulations are designed to ensure that the constitution, responsibilities and functions of the Bank of England (BoE) continue to be clearly defined after Brexit in a no-deal scenario.
Amendments introduced by the draft Regulations are not intended to make policy changes, other than to reflect the UK’s new position outside the EU. The draft Regulations amend certain provisions in the Bank of England Act 1998, the Financial Services Act 2012, and related secondary legislation.
Certain definitions and activities in primary and secondary legislation cross-refer to current EU legislation which will become deficient once the UK withdraws from the EU. The draft Regulations make consequential amendments in line with changes in the versions of the EU regulations which will become retained EU law. For example, the definition of a “countercyclical capital buffer rate” is being amended so that it no longer refers to the existing definition in the Capital Requirements Directive IV (CRD IV). The definition will no longer refer to the CRD IV, and will only include the rates of UK banks and investment firms within the scope of the definition.
The draft Regulations also make changes to the information sharing and cooperation obligations between the UK and EU authorities. When the UK is no longer a member of the EU single market for financial services, it would not be appropriate for UK authorities to be obliged to share information or cooperate with the EU on a unilateral basis, with no guarantee of reciprocity.
For example the draft Regulations remove requirements imposed by the Capital Requirements Regulation (CRR) on the BoE to notify EU authorities where there is systemic risk to the financial system of an EU Member State. It also removes requirements which relate to the notification process under Article 458 of the CRR before certain macro-prudential measures can be taken by the BoE. This is because the retained CRR which will form part of domestic law in a no-deal scenario will remove this notification process, which would not be appropriate when the UK will no longer be an EU Member State. The retained CRR will not include specific requirements for UK authorities to share information with EU authorities, as EU authorities will be treated as any other third-country authority.