The detailed implications of Brexit for UK financial services regulation remains unclear. Financial services firms are surrounded by a complex web of domestic and European policy, which cannot be dismantled or amended overnight.
With negotiations still ongoing and the date of withdrawal rapidly approaching, firms face the difficult task of planning for multiple scenarios. Brexit is obviously a complex matter impacting many cross border industries. In respect of financial services, some key issues to consider include:
- How markets will be accessed;
- Firm authorisation and relocation issues;
- Passporting rights, third party status and equivalence regimes;
- Immediate changes to UK regulation and legislation;
- Central counter parties and euro-denominated clearing;
- How funds will be marketed and sold cross border.
The UK authorities have stated that they are confident there will be an implementation period agreed between the UK and the EU which will come into effect after the UK leaves the European Union. 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.
Conversely, the EU authorities have not outwardly committed to any such 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. 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 in the event there is no transition period, and provide sufficient time to apply for authorisation in the UK.
For UK firms looking to continue business in the EU, the European Commission has stated that in the event of a no deal scenario the UK would be treated as a third country firm for the purposes of financial services where such regimes already exist.
Financial services firms operate across European borders – whether it’s a UK firm with European customers, a pan-European group or non-EU firms with subsidiaries in the region. Brexit will have a material impact and management need to be aware of how their firm, services and clients could be impacted. Firms need to plan for the range of possible outcomes which could come their way. Business-critical decisions need to be taken and plans drawn up so make sure you keep an eye on the latest developments.
We can help
Bovill can help you operate in the UK and EU in the longer term. We can help with authorisations, governance reviews, prudential challenges, training and long term regulatory planning. We can also help you identify what you will need to do to be able to operate in the EU after Brexit and implement any changes – whether that is understanding how to operate within private placement regimes or helping you get authorisation in specific EU states. Wherever you are in the process give us a call.