Brexit effect: implications for financial services
11 July 2016
Industries: Financial Institutions
Jurisdictions: United Kingdom
Services: Financial Services
Although uncertainty remains over the exit process of the UK from the EU, there is a great deal which can be gained by understanding what is known. By analysing the potential effect of Brexit on the regulatory landscape, financial institutions in the UK and the rest of the EU can take steps to mitigate risk, minimize disruption and capture opportunity. By engaging with supporting the UK and EU as they navigate the way forward financial institutions can help shape their future operating environment. Clients can find out more about the particular implications of Brexit to Financial Services in this guide, which we will be continually updating.
The UK has voted to leave the European Union (EU). Uncertainty governs the exit process but there is a great deal which can be gained by understanding what is known. By analysing the potential effect of Brexit on the regulatory landscape, financial institutions in the UK and the rest of the EU (“rEU”) can take steps to mitigate risk, minimize disruption and capture opportunity. By engaging with supporting the UK and EU as they navigate the way forward financial institutions can help shape their future operating environment.
The journey begins here.
- If the UK ceases to be an EU member it could have significant implications for financial institutions in both the UK and rEU.
- The extent of the impact would largely depend on the nature of the arrangements that are put in place between the UK and rEU to govern how institutions in each jurisdiction will continue to access markets on a cross-border basis. It would also depend on the extent to which the UK maintains a regulatory framework which is regarded as equivalent to the EU financial services regulatory framework.
- If the cross-border passporting regime or an equivalent is not secured, financial institutions wishing to operate in both the UK and rEU may need to consider alternatives which could include establishing new regulated entities on each side of the “EU border” or evaluating whether third country rules may be adequate for their activities.
- Similar issues will be faced by banks, investment firms, insurers and intermediaries that currently operate on the basis of EU regulations or laws implementing EU directives.
- It will also be important to the capital markets and market infrastructures to benefit from the continuation of arrangements that facilitate crossborder access by firms in the rEU and the UK such as uniformity of governing laws, cross-border insolvency recognition, and the treatment of financial collateral to name but a few.
- Firms providing investment services, financial products or funds will need to take account of the impact of Brexit on investment mandates and product terms and product marketing arrangements.
- Third country status may offer access options for certain activities but generally not for retail business – the Appendix to this note summarises the access rights which UK financial institutions may have to the EU under various EU financial services regimes if the UK is treated as any other “third country”. Typically the access permitted to “third countries” is restricted and differs depending on the activity, with access more commonly being allowed for wholesale business activities.
- On-going access to the UK from rEU will depend on the UK’s regulatory response to Brexit, which could include on-going recognition of rEU passporting subject to appropriate caveats. If rEU firms are treated like any other non-UK firms, on the basis of the Regulated Activities Order, firms will need to consider whether they are performing regulated activities in the UK and, if so, whether there is an appropriate exemption (such as the overseas persons exemption) that might apply to avoid the need for UK authorisation.