Brexit Deal or No Deal

No Deal – Passporting into UK UK introduced a temporary permissions regime (TPR) Firms passporting into the UK given temporary permission for 3 years Need to register for the temporary permission Then need to obtain full authorisation within 3 years

No Deal – Passporting out of UK As yet – no reciprocal arrangement – general view there isn’t time to get this through the process Temporary special conditions for central clearing of derivatives and central depositories UK regulated firms will officially lose the right to passport into EU on 29th March

No Deal – Impact Most firms are authorised in the UK EU regulators already struggling with levels of applications EU businesses and customers will lose access to financial services – including investment funds and other complex financial products that have components based in the UK. Financial services firms across EU could lose access to essential infrastructure housed in the UK

No Deal - Regulators Duty to protect financial and payment systems and access for clients No regulation which allows them to create an orderly wind down in a No Deal scenario or guidance on how passporting rights should be removed How will the regulators enforce removal of passporting without causing harm to customers?

No Deal - Regulators No regulator has yet provided answers to these questions – contingency planning has focused on a few areas only A few EU regulators have advised firms to notify clients of the effects of Brexit on their services and what they are doing to reduce impact The FCA have advised UK firms that firms must treat customers fairly regardless of where they are based – but given no guidance on how to do this if you cannot do it legally. Most of the FCA’s no deal contingency planning focusses on firms passporting into the UK not UK firms passporting out

Deal Despite the rhetoric – a deal is more likely Theresa May – bribing MPs to back her with other amendments that don’t need EU approval – e.g. better workers rights legislation in UK etc Leaving it as late as possible – pressure more MPs into backing the deal to avoid no deal Calls for an extension to Article 50 – still being refused Need to agree by 11th March in order to get the legislation through by the 29th March (although I’m sure they’d speed it up!) Next parliament vote is on 14th Feb – hoping for an amended deal in respect of Ireland

What does the current Deal mean? Short Term Transition period until December 2020 – passporting rights etc will continue EU and UK will negotiate specific trade deals for each sector – details of these deals and what firms need to do will be made available as they are agreed Already calls for this period to be extended due to length of time negotiations are taking

Financial Services The UK’s position relies on Equivalence and bilateral Treaties to provide additional certainty Equivalence rules at the moment are not substantial or certain enough to be a basis for future relations. The UK currently considers it necessary for passporting to eventually end to allow both sides autonomy over future regulation

Current Timescales 29th March 2019 – Hopefully deal will be agreed and we will move into the transition period. Transition period until Dec 2020 – things stay as they are Dec 2020 – UK regulations will still be in line with EU directives but firms will probably need some form of additional authorisation and supervision to continue to passport After Dec 2020 – regulations will begin to diverge

Maintaining Equivalence Having the same regulations in Dec 2020 should allow for a less burdensome authorisation process for existing firms Will allow Equivalence to be adapted and used to allow other mechanisms for cross-border access other than full dual authorisation This would reduce regulatory burden for firms and governments But the priority is to allow both UK and EU autonomy over their regulations

Regulators approach to Brexit BaFin have said they are temporarily accepting internal models if they have been accepted by the UK regulators. They have said that they expect firms to move adequate resource over in time, but initially will accept that firms will not be able to relocate or source sufficient staff. Obviously over time firms will be expected to meet BaFin criteria. Encouraging firms to base themselves there Netherlands – aiming to become centre of European Financial Sector. ‘We assume that between thirty to forty percent of the European trade in financial instruments will opt for the Netherlands as a location. Thus, the Netherlands will become the financial trading centre within the EU27’, according to Merel van Vroonhoven, Chair of the AFM.

Questions?

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