Temporary transitional power

The temporary transitional power (TTP) allows the UK’s financial services regulators to delay or phase-in onshoring changes to UK regulatory requirements arising at the end of the transition period.
The following information was relevant between the end of the transition period (11pm 31 January 2020) and the expiration of the general Transitional Directions on 31 March 2021.

Introduction

On Friday 22 March 2019, the ‘Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019’ Statutory Instrument (SI) was made law. This SI created a temporary transitional power (TTP) for use by the UK’s financial services regulators (the regulators) to delay the application of, or otherwise modify, firms’ regulatory obligations where they have changed as a result of an SI made under Section 8 of the EU (Withdrawal) Act 2018. These changes are referred to as ‘onshoring’ changes.

The TTP is available for use by the UK’s financial services regulators in order to grant transitional relief for a period of up to two years from the end of the transition period.

We published our final Bank transitional direction in PS27/20 ‘The Bank of England’s amendments under the European Union (Withdrawal) Act 2018: Changes before the end of the transition period’ on Friday 18 December 2020. We published our final PRA transitional direction in PS30/20 on Monday 28 December 2020. 

We are using the TTP to provide broad transitional relief, with key exceptions, for 15 months after the end of the transition period, until Thursday 31 March 2022 (the TTP period). This means that, in all but a few areas, PRA-regulated firms and Bank-regulated financial market infrastructures (FMIs) did not need to have completed preparations to implement changes in UK law taking effect at the end of the transition period by 11pm on Thursday 31 December 2020. Where the TTP applies, firms and FMIs should use the TTP period to prepare for full compliance with their onshored regulatory obligations from Friday 1 April 2022. 

On Friday 9 July 2021, we published PS17/21 ‘Implementation of Basel standards’, setting out its rules for the implementation of international standards through a new PRA Capital Requirements Regulations (CRR) rule instrument. As part of this, certain provisions in the CRR, and CRR Level 2 Regulations (referred to as ‘CRR restatement provisions’), are not changing materially, but are being transferred into PRA rules on Saturday 1 January 2022.

In order to preserve the effect of the TTP for CRR restatement provisions, the PRA has included a mirror provision in the Interpretation Part of the PRA Rulebook. This replicates the effect of the PRA’s transitional direction for CRR restatement provisions until Thursday 31 March 2022, when the direction is due to expire. This is intended to ensure that firms do not lose the benefit of the TTP simply because these provisions are being moved from the CRR into PRA rules.

The TTP mirror provision can only apply to CRR restatement provisions. It cannot apply to new rules, or rules which the PRA is materially changing to implement outstanding Basel III standards in the UK, such as the net stable funding ratio. Firms must comply with the full requirements in these areas from Saturday 1 January 2022.

As part of PS17/21 the PRA published a list of CRR restatement provisions. Firms should refer to this document to determine which rules the TTP mirror provision can apply to.

The PRA has also carved-out the Liquidity (CRR) Part, the Liquidity Coverage Ratio (CRR) Part, and the related liquidity reporting and disclosure rules in the Reporting and Disclosure Parts of the PRA Rulebook from the application of the mirror provision. This was to ensure consistency across the liquidity coverage ratio and the net stable funding ratio. Firms will need to ensure that they are in compliance with onshored requirements in these areas from Saturday 1 January 2022.

Areas covered by specific transitional provisions, including the temporary permissions regime (TPR), the financial services contract regime (FSCR), the temporary recognition regime (TRR), and the temporary designation regime (TDR), are excluded from the general application of the TTP.

For firms in the TPR or Supervised Run-Off (SRO) regime: specific transitional relief is available in relation to some of the new third-country requirements applicable for the first time to firms in the TPR or SRO. For more information on transitional relief available, please see ‘transitional relief for firms in TPR’ section in Temporary Permissions Regime, and the ‘transitional relief for firms in SRO’ section in Financial Services Contracts Regime.

General guidance documents to accompany our transitional directions were published with PS27/20 and PS30/20, and have been updated in light of PS17/21.

Guidance documents

To support understanding of the application of the TTP, we have produced a number of file-specific guidance documents to complement the general guidance documents on the Bank and PRA Directions:

What this section contains

This section contains information on:

  • What can the TTP apply to?
  • The Bank and PRA’s general approach
    • Diagram A: Does transitional relief apply to an obligation?
  • What happens when the TTP does apply?
  • Exceptions
    • Exceptions to the Bank’s general approach
    • The interaction between the TTP and other transitional or savings provisions
      • Specific transitional relief for firms in the TPR and SRO
      • Specific transitional relief relating to credit ratings
      • Specific transitional relief for bilateral margining
      • Specific transitional relief for credit unions’ investments in the EEA
    • Additional exceptions specifically relating to PRA-regulated firms
      • Obligations relating to the Securitisation Regulation
      • Accounting and audit legislation
      • Technical information produced by EU authorities
      • Application of the transitional power to CRD V and BRRD II derived legislation
    • Additional exceptions specifically relating to FMIs
      • Central counterparty (CCP) obligations under the Markets in Financial Instruments Regulation (MiFIR)
      • Specific CCP obligations under European Market Infrastructure Regulation (EMIR)
      • Amended settlement finality regulations and the temporary designation regime
      • Central Securities Depositories Regulation (CSDR)
  • The interaction between the TTP and equivalence decisions and equivalence directions
  • Duration of transitional relief

What can the temporary transitional power apply to?

The TTP can only be applied to ‘relevant obligations’. These are a firm’s regulatory obligations that the Bank, PRA (or Financial Conduct Authority (FCA)) is responsible for supervising, or that has other functions relating to a person’s compliance with the obligation, which is changing as a result of a statutory instrument made under Section 8 of the EU (Withdrawal) Act 2018. This includes changes that:

a) HM Treasury has made to onshored EU regulations (such as the Capital Requirements Regulation (CRR));

b) HM Treasury has made to existing domestic legislation that relates to EU membership (for example UK legislation that implemented an EU Directive); and

c) the Bank and PRA (and FCA) has made to rules and Binding Technical Standards (BTS).

The TTP cannot be used for any purpose other than facilitating firms and FMIs in adjusting to the UK’s post-transition period regulatory regime. As such, it cannot be used to waive or modify a firm’s or FMI’s obligations where they are unaltered by legislation made under the EU (Withdrawal) Act 2018. This includes new rules, or changes to rules, made by the PRA under FSMA, and the powers contained in the Financial Services Act 2021.

The TTP is only available in relation to changes that alter firms’ and FMIs’ regulatory obligations. The TTP therefore cannot be used to delay the application of onshoring changes which are concerned with the regulators’ own functions and powers, or that relate to the functions of other bodies such as the UK Courts. This includes, for example, changes to regulatory processes for granting permissions and Court applications for business transfers under FSMA Part VII.

The Bank and PRA cannot use the TTP to mitigate any impacts of the UK’s withdrawal from the EU which require action by the EU. For example, the power could not be used to allow UK firms to continue to provide services to EU clients, or to change the treatment of UK firms or assets under EU law.

The general approach to the temporary transitional power

We are using the temporary transitional power in a broad way to all relevant obligations with limited exceptions.

Diagram A – Does transitional relief apply to an obligation?

Diagram depicting if transitional relief applies to the relevant obligation or not

What happens when the TTP does apply?

Should the TTP apply to an obligation, the effect depends on whether the obligation began to apply for the first time or whether the obligation applies differently as a result of an onshoring amendment.

If the obligation applies for the first time, then it will not apply for the duration of the TTP period.

If the obligation applies differently, then the obligation should be altered so that it achieves the same result as it would have immediately before the end of the transition period, but in the context of the UK no longer being an EU member state.

The broad use of the transitional powers means, for example, that after the end of the transition period and for the duration of the TTP period:

  • Firms and FMIs continue to treat EU27 exposures and assets preferentially, under the applicable capital frameworks, and large exposure regimes.
  • Firms and FMIs continue to report and disclose regulatory data on the same basis as before the end of the transition period, except in certain areas where new, or amended, requirements have subsequently been introduced.
  • EEA headquartered insurance groups do not need to calculate or report consolidated capital requirements on the basis of any such new UK sub-group. (To make this effect of the TTP operational, HM Treasury has relieved the PRA of its obligation to exercise group supervision at the level of any new UK sub-group that arises as a result of the UK’s withdrawal from the EU for the duration of the TTP period.)
  • Credit unions can continue to place deposits with EEA credit institutions.

On Saturday 1 January 2022, the PRA’s rules implementing Basel III standards in the UK as part of PS17/21 will enter into force. This will have implications for the transitional relief available to firms in certain areas, because the TTP cannot apply to new rules, or rules which are materially changing to implement Basel III standards in the UK, such as the net stable funding ratio.

The TTP would also be unable to apply to CRR Articles and CRR Level 2 Regulations that are not changing on Saturday 1 January 2022, but are being transferred into PRA rules. These PRA rules are referred to as ‘CRR restatement provisions’. In order to preserve the effect of the TTP, we have included a mirror provision in the Interpretation Part of the PRA Rulebook. This replicates the effect of the PRA’s transitional direction for CRR restatement provisions until Thursday 31 March 2022, when the direction is due to expire.

As part of PS17/21, the PRA published a list of CRR restatement provisions.. Firms should refer to this document to determine which rules the TTP mirror provision can apply to.

We have carved-out the Liquidity (CRR) Part, the Liquidity Coverage Ratio (CRR) Part, and the related liquidity reporting and disclosure rules in the Reporting and Disclosure Parts of the PRA Rulebook from the application of the TTP mirror provision. The implication of the carve-out, is that firms will have to comply with the onshored requirements in these areas from Saturday 1 January 2022. This means that from Saturday 1 January 2022:

  • Firms will need to apply third country treatment to EU27 assets and exposures under Liquidity Coverage Ratio requirements.
  • UK subsidiaries or UK approved holding companies that are part of EEA headquartered banking groups will need to comply with consolidated liquidity requirements at the UK level.

The liquidity carve-out is intended to ensure consistency with Net Stable Funding Requirements introduced in the UK from Saturday 1 January 2022, to which the TTP cannot apply.

The above lists are not exhaustive. It is up to firms and FMIs to determine whether the TTP, or the TTP mirror provision applies in line with the Bank’s and PRA’s detailed guidance on TTP.

Exceptions

Exceptions to the Bank’s general approach

We have identified three key exceptions where the TTP will not be used to delay onshoring changes to firms’ obligations. We consider that granting transitional relief in these areas could undermine our statutory objectives. This means that firms will need to comply with these onshoring changes from the end of the transition period.

The three key areas where transitional relief is not available are:

a) Contractual recognition of bail in rules: We will not be granting transitional relief in respect of liabilities that are intended to count towards a firm’s minimum requirement for own funds and eligible liabilities (MREL), as this could undermine resolvability. In order to act proportionately, however, we will use the TTP in relation to phase two liabilities, as these have a lower potential impact on resolvability. Accordingly, firms will be required to include contractual recognition of bail-in terms in all new or materially amended liabilities, other than phase two liabilities, from the end of transition period.

b) Contractual stays: We will not be using the TTP in respect of new or materially amended non-UK EEA law governed financial arrangements in scope of the Stay in Resolution Part of the PRA Rulebook. This reflects the importance of these instruments in executing a resolution.

c) Financial Services Compensation Scheme (FSCS) protection: We will not be granting transitional relief to onshoring changes made to the Depositor Protection and Policyholder Protection Parts of the PRA Rulebook, which apply from the end of the transition period. To deliver effective FSCS protection, deposit takers must be able to deliver a Single Customer View (SCV) to enable payout by the FSCS in the case of failure; depositors must be aware of the changes in protection; and FSCS levies must be calculated on the basis of the changed scope. Otherwise, the aims of the FSCS regime and benefits to the stability of the financial system could be undermined.

The interaction between the temporary transitional power and other transitional or saving provisions

The TTP does not apply to any area where there is already a specific transitional or saving provision. This notably includes the temporary recognition and permission regimes, the financial services contract regime, and the use of Credit Ratings.

Specific transitional relief for firms in the temporary permissions regime (TPR) and the supervised run-off regimes (SRO)

For firms in the TPR and SRO, a specific set of transitional provisions applies. For more detail please see the ‘transitional relief for firms in TPR’ section in Temporary Permissions Regime and, the ‘transitional relief for firms in SRO’ section in Financial Services Contract Regime.

Specific transitional relief relating to credit ratings

The use of Credit Ratings is also subject to specific use of the TTP. Firms have been provided with a run-off period in which they can continue to use, for regulatory purposes, credit ratings issued or endorsed and not immediately withdrawn, before the end of the transition period, by EU credit ratings agencies without an affiliate which has registered with the FCA or applied for registration before the end of the transition period.

In this specific area, transitional relief is only provided for a period of 12 months after the end of the transition period. This time period aligns with the existing transitional provision in the Credit Rating Agencies (Amendment, etc.) (EU Exit) Regulations 2019 (the CRA SI), which provides for the continued regulatory use of ratings issued or endorsed, and not withdrawn, by EU CRAs with a group affiliate registered or applying for registration in the UK at the end of the transition period.

The cumulative effect of the run-off period applied by the transitional power and the separate transitional provision in the CRA SI is that UK firms may, for a period of one year after the end of the transition period, use a credit rating for regulatory purposes if it was issued or endorsed, and not withdrawn, by an EU credit rating agency before the end of the transition period.

Specific transitional relief for bilateral margining

To provide clarity, we have replicated the effect of the application of the general transitional power with specific amendments within the UK Technical Standard (UKTS) (the onshored regulatory technical standard (RTS)) on bilateral margining under EMIR. Firms can therefore continue to rely on existing operational and legal arrangements for compliance with this UKTS.

We have updated the end date of the specific transitional relief to Thursday 31 March 2022 to maintain alignment with the duration of the overall TTP period.

We highlight two aspects:

  • Counterparties may choose to comply with the narrower UKTS requirements at any point during the TTP period. In many cases, the UKTS already provides firms discretion in how to comply with the requirements. For instance, firms may already accept a more limited range of collateral than permitted under the UKTS. This approach also allows firms to spread the operational challenges over the TTP period (ie 15 months) rather than concentrated at a single end date.
  • The UKTS supplements transitional provisions provided for in the CRA SI (and the general use of the transitional tool with respect to credit ratings as set out above) to extend the transition for use of regulatory ratings to apply to non-financial firms. The specific transitional period within the UKTS is aligned with that of the CRA SI (ie 12 months).

In PS14/21 ‘Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251’ the PRA and FCA extended the transitional as it applies to the eligibility of EEA UCITS as acceptable collateral. This was in response to submissions received to CP6/21, where respondents noted that exclusion of EEA UCITS may pose particular challenges to firms coming into scope of the 2021 and 2022 initial margin phases. This specific transitional provision has been extended until 31 December 2022. 

Specific transitional relief for credit unions’ investments in the EEA

We have made a change to PRA rules so that credit unions will be able to hold EEA investments made before the end of the transition period to maturity (maximum of 5 years) but any (non-UK) EEA investments made after the end of the transition period cannot have a maturity that exceeds the TTP period.

We have updated the fixed end date of the transitional relief for credit unions’ investments in the PRA Rulebook to Thursday 31 March 2022, to maintain alignment with the duration of the broad temporary transitional power.

Additional exceptions specifically relating to PRA-regulated firms

Obligations relating to the Securitisation Regulation

The amendments made to the Simple, Transparent and Standardised (STS) framework in the onshored Securitisation Regulation already achieve the intended objective of the transitional power by removing barriers to a UK STS market which apply from the end of the transition period. We do not consider these onshoring changes to be disruptive for firms, and therefore obligations relating to STS securitisation are exempt from the use of the transitional power. This includes the modifications to Article 270(a) CRR and introduction of 270(aa) to the onshored version of CRR.

The transitional power will also not be used in relation to obligations relating to securitisation repositories. This is to ensure that UK regulators are able to exercise appropriate oversight of the UK securitisation market after the end of the transition period. Therefore, firms will be required to make information on securitisations which are not ‘private’ available through a securitisation repository registered by the FCA (where one exists) rather than to repositories based in the EU after the end of the transition period.

Accounting and audit legislation

References in PRA rules and onshored legislation to International Accounting Standards (IAS) should be read as references to EU-adopted IAS for the duration of the TTP period, until a firm moves from EU-adopted IAS to UK-adopted IAS for statutory accounting purposes. This exception to the use of the transitional power has been made in order to avoid firms needing to potentially refer to two separate accounting requirements: one for statutory accounts purposes and another for the purpose of complying with PRA rules and relevant legislation.

Technical information produced by EU authorities

EU authorities are currently responsible for the publication of various registers, lists and technical information. For example, the European Insurance and Occupational Pensions Authority (EIOPA) is responsible for publishing technical information under Article 77e of the Solvency II Directive that insurers use for regulatory valuations.

Where we are responsible for publishing that information after the end of transition period, firms should use information published by us, rather than continuing to rely on the EU information published by EIOPA. Therefore, transitional relief does not apply to firms’ obligations to use technical information published by the PRA after the end of the transition period.

Application of the transitional power to Capital Requirements Directive V (CRD V) and Bank Recovery and Resolution Directive II (BRRD II) derived legislation

No additional exceptions from the application of the transitional power are required in relation to onshoring changes to new rules and legislation implementing CRD V and BRRD II. The transitional power can only apply to the small number of changes resulting from the UK’s exit from the EU and not to changes implementing these Directives.

Additional exceptions specifically relating to FMIs

Central counterparty (CCP) obligations under the Markets in Financial Instruments Regulation (MiFIR)

The transitional power does not apply to any relevant obligations for CCPs under MIFIR and relevant BTS. We will not be using the transitional power in relation to areas in the onshored MiFIR where the effect of the transitional power could be achieved by HM Treasury making an equivalence decision or direction Where an equivalence decision or direction has been made, this will replicate the effect of applying the transitional power, and the area remains excluded from the use of the transitional power to avoid duplication.

Specific CCP obligations under EMIR

We will not be using the transitional power in relation to areas in onshored EMIR where the effect of the transitional power could be achieved by HM Treasury making an equivalence decision or direction. Where an equivalence decision or direction has been made, this will replicate the effect of applying the transitional power, and the area remains excluded from the use of the transitional power to avoid duplication.

The transitional power does not apply to the arrangements that the UK has put in place for the temporary and permanent recognition of CCPs. Specifically:

  • The transitional power does not apply to the requirement for a third-country CCP to notify us of any material changes affecting the conditions of its recognition under Article 25(4) of EMIR or the requirement for a third-country CCP to submit a reasoned request to be assessed against Article 25a of EMIR.
  • The transitional power does not apply to the CCP temporary recognition regime. Third-country CCPs providing clearing services under this regime are ‘deemed recognised’ under Article 25 of EMIR, and any relevant obligations need to be complied with as set out therein.
  • The transitional power does not apply to third-country CCPs providing clearing services under the ‘run-off regime’ set out in the Financial Services Contracts (Transitional and Savings Provision) (EU Exit) Regulations 2019 (the FSCR SI).

Amended settlement finality regulations and the temporary designation regime

The transitional power does not apply to the arrangements that the UK has put in place to extend settlement finality protection to FMIs not governed by UK law and to certain third-country central banks. Specifically, the Financial Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019 are exempt from the use of the transitional power. These regulations give the Bank of England powers to grant permanent designation to FMIs that are not governed by UK law, and establishes a temporary designation regime for FMIs that are currently designated in other EEA states. We also have the ability to extend UK settlement finality protection for collateral security to certain third-country central banks.

Central Securities Depositories Regulation (CSDR)

The transitional power does not apply to the arrangements that the UK has put in place for the recognition of third-country Central Securities Depositories (CSDs). Specifically:

  • The transitional power does not apply to the requirement for a third-country CSDs to notify the Bank of any material changes affecting the conditions of its recognition under Article 25(6A) of CSDR.
  • Article 69 of CSDR, as amended by the Central Securities Depositories (Amendment) (EU Exit) Regulations 2018, is exempt from the transitional power. This exempts the transitional regime for third-country CSDs, which allows for continuity of settlement services following the UK’s withdrawal from the EU.

The interaction between the use of the transitional power and equivalence decisions or equivalence directions

In some areas, use of the transitional power will produce the same effects as HM Treasury finding the EU jurisdictions equivalent under specific provisions in UK legislation. Where HM Treasury has made an equivalence decision or equivalence direction in these areas the relevant provisions will be excluded from any application of TTP to avoid duplicating the effects of the equivalence decision.

We will exempt all areas of the onshored MiFIR and certain areas of EMIR from the scope of the transitional power where HMT have not made an equivalence decision or equivalence direction but the effect of the transitional power could be achieved by them doing so.

Duration of transitional relief

The maximum possible duration for which transitional relief can be granted is two years after the end of the transition period.

We typically give firms between 6 and 12 months to implement significant system changes. The Bank and PRA therefore consider that 15 months should provide an adequate timeframe for firms and FMIs to prepare and implement the totality of onshoring changes.

We have made transitional relief available for firms and FMIs for a 15-month period after the end of the transition period (the TTP period). This means that generally firms and FMIs should continue to comply with their existing regulatory obligations until Thursday 31 March 2022.

The TTP mirror provisions will preserve the effect of the PRA’s transitional direction for CRR restatement provisions until Thursday 31 March 2022. We have however carved out the Liquidity (CRR) Part, the Liquidity (CRR) Part, and the related liquidity reporting and disclosure rules in the Reporting and Disclosure Parts of the PRA Rulebook from the application of the TTP mirror provision. This means that transitional relief will no longer be available for firms in these areas from Saturday 1 January 2022.

This page was last updated 31 January 2023