The UK government published a Technical Notice last 23 August giving guidance to the banking, insurance, and financial services sectors in a “no deal” scenario, a situation where the UK leaves the EU in March 2019 without an agreement.
The notice is short on new announcements, but draws together in one place the significant steps that the UK government and regulators will take to protect European Economic Area (EEA) firms operating within the UK and their UK-based customers if passporting rights cease abruptly.
UK plans three-year extension for EU firms
Planned measures include a commitment that EU firms and market infrastructures will, subject to making notifications, be able to continue to operate within the UK for up to three years after March 2019 under temporary arrangements. It is well worth noting that the advisory also assures that the validity of contracts already running between UK customers and EEA firms will be recognised.
These steps are to be welcomed and represent a sensible, pragmatic approach to protect market participants. They stand in stark contrast to the EU’s failure (to date) to propose equivalent measures to protect EEA customers and EEA operations of UK firms.
EU firms need to be ready by March 2019
The EU approach has been to suggest that UK firms need to obtain new regulatory licences by March 2019, and there is uncertainty as to the validity of contracts concluded with these firms during the UK’s period of EU membership. While the UK has been taking steps to ready itself for such an outcome, it remains unclear whether this can be fully achieved in the time available.
There are limits to what the UK can achieve unilaterally. In the absence of reciprocal measures from the EU, there is likely to be disruption, but the UK’s measures will go some way in mitigating the risks on their side.
The notice contains a few specific points of note:
- The government accepts that for payments there may well be an impact from exit with the cost of cross-border card payments likely to increase and such payments will no longer be covered by the surcharging ban.
- For asset management, there is optimism that delegation models will be able to continue. The government has said that UK managers of EEA funds should plan on that being the case for now.
- Finally, the statement that UK firms may not be able to trade certain equities and derivatives on EEA trading venues post-Brexit indicates that the UK may take a “tit for tat” approach in this area.