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Financial services are a key part of the UK and EU economy, providing services to commercial and retail customers.
The sector includes banking, insurance, investment and property, and employs more than 1 million people. It could be critically impacted by Brexit and is a key area for the negotiations:
- The European Council’s March 2018 negotiating guidelines envisage the UK becoming a “third country”, outside the EU27’s legal framework
- The UK government set out its view in the Chancellor’s HSBC speech that the size and importance of the UK’s finance sector means there should be a “structured regulatory dialogue” with the UK being allowed to “deliver an equivalent outcome by different means”, and with the industry having a “special travel regime” for inter-company transfers of less than 3 months
- The financial services industry’s International Regulatory Strategy Group have called for a close working arrangement between the UK and EU27, with a robust dispute resolution mechanism.
UK view on a No Deal Brexit for Banking – August 2018
The key issue for both providers and users of financial services is the loss of “passporting” in the event of no-deal. Passporting essentially provides a licence to operate in European Economic Area (EEA) countries other than that in which the provider is domiciled. No-deal would mean the end of passporting, both for UK firms to EEA countries, and the converse.
HMG’s proposal, as a partial solution, is the creation of a Temporary Permissions Regime (TPR), which would act as a quasi-passporting framework, for EU service providers wishing to continue to operate within the UK. In essence, it aims to extend the licence to operate in the UK, for EEA firms, after cessation of the existing passporting arrangements.
As its name implies, it is intended to provide a temporary framework, to reduce disruption of finance-related facilities in the event of no-deal. Clearly, a longer-term solution will ultimately be needed. HOWEVER, TPR only offers a solution for one dimension of the problem. It applies only to ‘passporting-in’ of services to the UK by providers from the EEA.
UK providers of financial services to EEA countries are not covered by TPR, so a no-deal would mean loss of licence to operate in the EEA after cessation of passporting, unless, for example, the provider establishes a local subsidiary in the relevant EEA state.
The implications vary across different financial services, and types of customer. We strongly encourage members to use our Brexit Directory to access information on relevant details.
The main document on “Banking, insurance and other financial services” can be found here. The Treasury’s approach to financial services legislation under the EU (Withdrawal) Act 2018, along with details of draft legislation and policy notes can be found here.
The Bank of England’s information about the Temporary Permissions and Temporary Recognition Regimes, including what action firms or FMIs should take now is linked here.
The FCA’s information about the Temporary Permissions Regime, including what action firms should take now is linked here.
The FCA’s guidance for firms on preparing for the UK’s exit from the EU is linked here.
The Bank of England’s document setting out its approach to financial services legislation under the European Union (Withdrawal) Act 2018 is linked here.