Brexit Update For The Financial Services Sector
It is undeniable that Brexit continues to dominate the business landscape in the UK. Following confirmation by the European Council in December that sufficient progress had been made on the first phase of talks (the Brexit bill, the rights of EU citizens and the Northern Irish border) to start discussions on an implementation period and the future trading relationship between the UK and the EU, attention will now turn to the details of that future relationship.
Services are an incredibly important part of the UK economy and ministers have wasted no time in trying to enlist support for the view that a Brexit deal should include financial services, despite the EU’s stance being entirely the opposite. The notion of a “Canada plus plus” trade deal, replicating the Canada-EU trade deal, but with an additional agreement on services, including financial services may have support in the UK, but it is vehemently opposed by the EU.
EU financial markets continue to grow and improve in efficiency, due mainly to the harmonisation of rules, the removal of barriers, greater competition and the development of new technology. Regulation and legislation play a key role in the first three of these growth factors and since UK financial services regulation has to comply with European law, untangling this position will be challenging. To illustrate the degree of the problem, it is thought that 70% of the policymaking effort of the Financial Conduct Authority (FCA) is driven by European initiatives.
Last month the FCA published a statement on the UK’s withdrawal from the EU, coming out (unsurprisingly) in support of free trade in financial services. The statement can be found in full by clicking this link.
The key points in the FCA’s statement are as follows:
- It is anticipated that passporting rights (the rights through which a financial institution can conduct business in one or more other EEA member states, without obtaining additional authorisations or licences in those member states) will continue during any implementation period;
- If necessary, the Government will legislate for a temporary permissions scheme to allow relevant firms to carry out new business within the scope of their permission, perform their contractual rights and obligations and manage their existing business to mitigate the risks of a sudden loss of permission;
- UK-based firms servicing clients in the EEA will need to continue to monitor developments and to be ready to adjust for a wide range of scenarios, especially as negotiations progress on the implementation period and any trading deal between the UK and the EU.
Clearly the FCA and the Government are keen to assist relevant firms in navigating the issues that arise from Brexit but, as far as the future trading relationship in financial services provided from the UK into the EEA is concerned, there is little clarity at present.
Tollers will continue to review and report on topics related to Brexit and its impact on our clients.