The regulatory regime for companies following the UK’s withdrawal from the EU

The post below was first published on our Corporate blog

The UK ceased to be a Member State of the European Union on 31 January 2020. A transition period then applied until 31 December 2020. During the transition period, EU law continued to apply in and to the UK, and the UK continued to trade as part of the Single Market.

The Brexit transition period ended on 31 December 2020, with the EU and UK having agreed to the terms of their future relationship through a Trade and Cooperation Agreement – you can read more about the implications of the agreement here.

Retained EU law

As of 1 January 2021, EU law no longer applies in the UK. By virtue of the European Union (Withdrawal) Act 2018, directly applicable EU law in force in the UK at the end of the transition period is retained as part of the UK statute book. Retained EU law has broadly the same status as any other UK enactment and is subject to the same rules/processes for amendment as any other UK primary or secondary legislation (or if made under devolved powers, the rules of the relevant legislature in Scotland, Wales or Northern Ireland).

EU Exit statutory instruments

The Government has made secondary legislation dealing with a range of corporate law matters to ensure that both Retained EU law and existing UK law and regulation (for example that referenced EU concepts or bodies) could operate effectively once the transition period ended. These regulations include:

• Company law – the Companies, Limited Liability Partnerships and Partnerships (Amendment etc.) (EU Exit) Regulations 2019 make a range of miscellaneous amendments in relation to EEA companies with a UK establishment or branch, and revoke the Companies (Cross-Border Mergers) Regulations 2007;
• Accounts – the Accounts and Reports (Amendment) (EU Exit) Regulations 2019 amend the Companies Act provisions on the preparation and filling of accounts, to remove the preferred treatment for EEA companies and limit the scope of certain exemptions to UK companies with UK parents;
• Market abuse and inside information – the Market Abuse (Amendment) (EU Exit) Regulations 2019 address deficiencies in the market abuse regime arising from Brexit. The regulations amended Retained EU Law relating to market abuse, including UK MAR, to ensure that the relevant legislation continues to operate effectively.
• Listing regime – the Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019 underpin the changes to the Listing, Prospectus Regulation, Disclosure Guidance and Transparency Rules necessary for Brexit.
• Prospectus regime – the Prospectus (Amendment etc.) (EU Exit) Regulations 2019 ensure the UK has a coherent and functioning prospectus regime, including transferring the UK prospectus supervisory functions from ESMA to the FCA.
• Contract – the Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019 ensure that EU rules that determine the law applicable to contractual and non-contractual obligations continue to operate effectively in domestic law after Brexit by incorporating the substantive rules in Rome I and Rome II into UK domestic law.
• Enforcement of judgments – the Civil Jurisdiction and Judgments (Hague Convention on Choice of Court Agreements 2005) (EU Exit) Regulations 2018 implement the UK’s international treaty obligations as an independent contracting party to the Hague Convention on Choice of Court Agreements 2005, ensuring that the Convention can work effectively between the UK and all the existing contracting parties to the Convention, and allowing the UK to operate the Convention with any future contracting parties.
• Competition – the Competition and Markets Authority was granted the power under the Competition (Amendment etc.) (EU Exit) Regulations 2019 to review mergers that affect the UK market (even where the transaction is also being reviewed by the European Commission), where the UK jurisdictional thresholds are met. There are transitional provisions for proceedings and investigations that were already under way at the end of the transitional period.

FCA Rules

The FCA has made a number of changes to its Handbook that apply with effect from the end of the Brexit transition period, including changes to the Listing, Prospectus Regulation, Disclosure Guidance and Transparency Rules.

The impact of the rule changes for UK incorporated companies which have securities admitted only to a UK regulated market will be minimal. Issuers which have shares admitted to a regulated market in the UK and in an EEA state will have to adjust their systems and controls and, for example, make additional notifications to regulators for certain matters, including in relation to PDMR transactions.

Takeover Code

The Takeover Panel has similarly made a number of changes to the Takeover Code that were required as a result of Brexit. The changes will not have a significant impact on transactions.