Have you planned for a hard Brexit?

Bovill

Reality is closing in. By now many firms are moving from a strategic decision of where in Europe they might operate from, to implementation of their plans. This has meant reactivating EU subsidiaries, applying for authorisation and considering where in Europe some operations may be sited.

What we still don’t know is whether or not there will be a withdrawal agreement in place or the length of an implementation period.

The FCA are confident that there will be an implementation period agreed between the UK and the European Union which will come into effect after the UK leaves.  This would mean that for a fixed period financial services firms would be able to trade on the same basis as they do today and will also need to comply with any new EU law which comes into effect before 31 December 2020.

The EU authorities however have not outwardly committed to any plans. In fact Andrea Enria, the Chairman of the EBA, has warned that “firms cannot take for granted that they continue to operate as at present nor can they rely on as yet unrealised political agreements or public policy interventions. Risks, capacity and legal implications must be examined and addressed.

The UK authorities have a number of contingency plans including a new temporary permissions and recognition regime. In the event there is no transition period, this should allow non-UK financial services firms to continue their activities in the UK for a time limited period after the UK has left the EU, and provide sufficient time to apply for authorisation in the UK. The FCA will provide ‘landing slots’ to those who sign up now.

We do not yet know what the world will look like after Brexit and firms must plan effectively for different scenarios with parameters that keep moving.  While different contingencies may be possible, at the moment the only clear option is for firms to seek UK authorisation if they wish to continue operating in the UK post Brexit.

International banks in particular need to look at their approach to authorisation and consider whether they need to set up branch or subsidiary structures.

How does this affect UK branches of EEA banks?

While a transitional period should provide sufficient time for firms to apply for authorisation, the PRA has already issued guidance on its approach to UK branches in its statement: International banks: the Prudential Regulation Authority’s approach to branch authorisation and supervision. Many firms have submitted their third country application in anticipation for being regulated as a third country firm.

A simplified look at the PRA’s guidance to subsidiaries

Bovill have unpicked the PRA’s guidance for international banks to create a simple flowchart. We consider deposit taking levels, threshold conditions, home state regimes, systematic importance and whether you’re considered supervisable by the PRA to help you make a decision.

Contact us now to request a copy of our Brexit flowchart.

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