Analysis GA&P | June 2016 1 1. Financial institutions 1.1. Common aspects − “Community passport” Brexit will mean that financial institutions headquartered in the UK will be subject to the rules and restrictions for third countries headquartered outside the European Union. Similarly, financial institutions headquartered in Europe will have to overcome greater legal obstacles if they wish to do business in the UK. As a result, British companies and their subsidiaries in the European Union will have to relocate in order to maintain this privilege. − Supervision and solvency Brexit will also bring about problems in terms of determining the framework for the supervision and solvency of financial institutions, as the UK will be left outside the regulations laid down by the Solvency II Directive and the Basel III Accord, for example. − Sale of debt Financial institutions can offer bonds or shares on the regulated community market to obtain financing under conditions and requirements common to all Member States and can therefore use the same prospectus in all the markets on equal terms without being subject to new requirements from such States. Brexit could lead to differences b e tw e e n E u r o p e a n a n d B ri ti s h legislation in this regard. 1.2. Insurance and reinsurance − Impossibility of direct supervision Solvency II provides for the supervision of a branch of an insurer in another Member State to be carried out by the Multisectoral effects of Brexit: what are the legal implications? Ana I. Mendoza Losana and Jesús Almarcha Jaime Knowledge Management Department, Gómez-Acebo & Pombo The aim of this paper is to summarise some of the main legal implications that Britain’s exit from the European Union, or Brexit, will have for the EU and the UK. For this purpose, we have assumed that the UK will be a member of the World Trade Organisation, but not so of the European Economic Area as it will probably not be willing to lose sovereignty in its decision-making, as has occurred with Norway and Switzerland. Analysis GA&P | June 2016 2 regulator of the home Member State. This is not possible for third country undertakings. − Impossibility of automatically commencing business Reinsurers headquartered in the UK will be subject to the regime provided for non-EU reinsurers and will no longer enjoy the advantage of being able to automatically start doing business in another state by way of communication between the regulators. In fact, for both insurers and reinsurers, the administrative silence procedure must be taken as a rejection of the application. − Impossibility of direct business Direct business in Spain with British insurance companies or business with such companies through a broker will no longer be possible except through a legally set up branch. − Community coinsurance It is not clear if Brexit will prevent insurers headquartered in the UK from being a member of community coinsurance agreements. The nature of this institution is such that there is no clear need for coinsurers to be from a Member State. Therefore, we understand that the term “community” can be construed as referring to the risk situation in the European territory. Moreover, a British insurer with a branch in another Member State could be a member of a community coinsurance agreement. In all, there is a clear dilemma, particularly if we take into account the previous wording of article 33(a) of the Insurance Contracts Act (Ley de Contrato de Seguro). − Insurance distribution Legal or natural persons wishing to distribute insurance may elect into a different regime depending on whether they act within or outside the European Union. Thus, when the risks or commitments are in the UK or when the distributor does business in the UK, the Insurance Distribution Directive shall not apply. This could mean, for example, a relaxation of pre-contractual information obligations in the UK. 1.3. Banking − Payment services New Directive (EU) 2015/2366, on payment services, will not apply to payment services in the UK. One of the main issues will be actions taken by FinTechs, many of which are headquartered in London. − MiFID Directives MiFID I and MiFID II differ significantly in their treatment of firms from third countries, which is what the UK will be. For example, MiFID II provides two different regimes with different provisions for retail clients and business clients. In most cases, a third country bank may only provide investment services to retail clients in a Member State through a branch authorised in that Member State. Prior to authorising a branch, the supervisory authority of such Member State must make sure that the third country in question meets requirements relating to antimoney laundering and counter-terrorist financing. In all likelihood the UK will try to ensure the equivalence of UK and EU legislation, although certain aspects may be revised seeing as the UK opposed them during the procedure to approve the directive. 2. Competition law − Antitrust practices While British companies’ actions affecting the EU will continue to be subject to EU competition rules, the European Commission will no longer be able to investigate British companies in situ or ask the national and community regulators to carry out an investigation on its behalf. It will instead be restricted to making information requests in writing. Analysis GA&P | June 2016 3 − Merger control There will no longer be cooperation between the European Commission and the UK in this regard, meaning that new mergers will be analysed by both parties and companies will face greater bureaucracy and more controls, while the UK Competition and Markets Authority will have to cope with a higher number of cases. − State aid The UK will be able to grant state aid, within the limits determined by the World Trade Organisation, without any possibility of reprisals from the EU Member States (and vice versa). 3. Data protection − Safe third country? In the field of data protection, the European Commission will have to designate the UK as a “safe third country” in order to avoid the application of stricter requirements on data transfers, mainly for companies that process data. − General Data Protection Regulation No longer applicable in the UK, at least as of 23 June 2018. However, British companies operating in the European Union will have to follow the guidelines provided in such regulation. The UK will most probably end up enacting a national law as compatible as possible with EU legislation in order to be able to reach a cooperation agreement with the European Commission. 4. E-commerce − Withdrawal from the Digital Single Market Measures adopted by the European Union in terms of geographic blocking, the improvement of cross-border parcel services and the reinforcement of consumer rights and confidence will have no repercussions in the UK. − Increase in trade restrictions More restrictions on e-commerce between the UK and the European Union, such as increased tariffs or cross-border control measures, may be imposed. This, together with a weakening of the pound, could lead to an economic downturn for the UK, its citizens and its companies. 5. Procedural aspects − Regulation European regulations on court jurisdiction, the recognition of judgments and governing law will no longer be applicable. − Submission to English law No substantial changes are expected in terms of the consequences of the jurisdiction of English courts, although English law will apply in the stead of the Recast Brussels Regulation. − Recognition and enforcement of judgments English judgments will no longer benefit from the privilege of automatic cross-border enforcement (art. 36 Recast Brussels Regulation) and, as a result, national exequatur proceedings will be required (if it is only recognition that is requested, it may be raised as an incidental issue), even if the UK signs the Lugano Convention. − Lis pendens and related actions The rules of the Recast Brussels Regulation are optional for courts, so there is no guarantee that a judge in a Member State will suspend proceedings (or decline jurisdiction) simply because the judgment in parallel proceedings in the UK may be recognised in such Member State. The “temporary basis” principle can only apply if the UK accedes to the Lugano Convention. − Material adverse change clauses For commercial and financial agreements subject to English law, it may be understood Analysis GA&P | June 2016 4 that the negative change is insufficient to terminate the agreement. However, such circumstance is possible in contracts with consumers, particularly if British lawmakers dismantle and weaken their rights. 6. Audiovisual: withdrawal from the Digital Single Market – Audiovisual licences and authorisations As long as the UK continues to be a member of the European Economic Area, audiovisual operators located in the UK may obtain licenses or authorisations to act as audiovisual service providers in other EU Member States which, like Spain, make Spanish nationality or nationality of another EEA country a condition for obtaining such licences or authorisations. However, in the event of leaving the EEA, UK audiovisual media service providers will only be able to obtain audiovisual licences in other States under the principle of reciprocity. – Possible restrictions on broadcasts from the UK The EU ensures freedom of reception and does not restrict transmissions on their territory of audiovisual media services from other Member States for reasons which fall within the fields coordinated by Directive 2010/13/EU, of 10 March, on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the provision of audiovisual media services (art. 3). Outside this scope there are no obstacles to restrictions on such broadcasts. Brexit will allow the Member States to restrict broadcasts from the UK for the reasons provided in the audiovisual media services directive (protection of minors or consumers, public security…) as well as for reasons not provided in such directive (e.g., to block advertisements for British products). – The UK will be excluded from the group of European regulators (ERGA, The European Regulators Groups for Audiovisual Media Services) ERGA will comprise twenty-eight national audiovisual regulators whose functions are to be reinforced in the forthcoming review of Directive 2010/13/EU. Its responsibilities include the evaluation of codes of conduct for audiovisual media service providers, including online video distribution platforms, and the provision of advice to the Commission. 7. Telecommunications: withdrawal from the single market for electronic communications – British companies will only be able to operate networks or provide electronic communication services in EU Member States under the terms of international agreements In Spain, as in other EU Member States, only Member State nationals (whether legal or natural persons) or nationals of other countries when provided for in international agreements that bind the State in question may operate networks and provide electronic communication services. However, in the absence of an international agreement to this effect, the respective governments may authorise general or specific exceptions. Without prejudice to any possible bilateral agreements, agreements between the UK and the EU or any private authorisations, Brexit will complicate the expansion of British telecommunications operators. – Impossibility of benefitting from the open network principle with respect to other Member State’s networks British operators will be deprived of access and interconnection rights pursuant to the open network principle (objectivity, transparency, proportionality and non-discrimination) and its interconnection rights will be on the same terms as those of non-EU companies. – Possible roaming price increases for consumers and companies Brexit means that the EU roaming regime will no longer apply. The UK will cease to be an EU territory for purposes of the application of Regulation 2015/2120/EU, of 25 November, laying down measures concerning open internet access and amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks and services and Regulation (EU) No 531/2012 on roaming on public mobile communications networks within the Union. This means that British companies and individuals will no longer be able to benefit from retail eurotariffs for roaming as well as other user protection measures provided in the aforementioned EU Analysis GA&P | June 2016 5 For further information please visit our website at www.gomezacebo-pombo.com or send us an e-mail to: email@example.com. Barcelona | Bilbao | Madrid | Valencia | Vigo | Brussels | Lisbon | London | New York regulation (per second billing, caps on data downloaded when roaming or information obligations, among others). Without prejudice to agreements between the parties, British operators that offer roaming services to their clients will also no longer be included in the wholesale price regime regulated in Regulation (EU) 531/2012 when the visited networks belong to EU Member States. – Exclusion from BEREC The UK will be excluded from the Body of European Regulators for Electronic Communications (BEREC), which provides advice to European institutions on legislation regarding the single market for electronic communications. 8. Energy: exit from the single energy market In addition to possible roadblocks the Member States may put in the way of British companies in terms of considering them third countries for the obtaining of the relevant licences and authorisations necessary to deploy networks or provide services in strategic sectors such as the energy sector, Brexit will have specific consequences in this area: – Exclusion from the internal energy market The UK will be excluded from the internal energy market as well as from the legislation that governs exchanges by way of internal interconnections (“single day-ahead and intraday coupling”), which guarantees, to the benefit of consumers, power flows from high-supply areas to high-demand areas [Regulation (EC) no 714/2009 of the European Parliament and of the Council, of 13 July 2009, on conditions for access to the network for cross-border exchanges in electricity; Regulation (EU) no 1227/2011, on wholesale energy market integrity and transparency, and Regulation no 2015/1222/UE, of 24 July, establishing a guideline on capacity allocation and congestion management]. – Exclusion from EU financing of common interest energy infrastructures By leaving the EU, the UK will no longer be able to benefit from the European Commission Plan for the financing of common interest energy infrastructures in order to achieve energy union. These infrastructures contribute to the integration of European energy markets and the diversification of energy sources and transport routes. Pursuant to EU Regulation no. 347/2013, the Commission shall revise the list of general interest infrastructures every two years. On 28 November of last year, the Commission approved a list of projects of common interest (PCIs) eligible for financial aid from the “Connecting Europe” facility for 2014-2020. This list of projects includes different interconnection infrastructures between the UK and other EU countries (the first interconnection between Belgium and the UK or the increased capacity of the interconnection between the UK, France and Ireland). Brexit will oblige the Commission to correct these classifications and, without prejudice to possible bilateral agreements, will deprive the UK of the benefits of energy interconnections (supply safety, price reductions and greater integration of renewable energies, among others). According the Commission’s forecast in its communication to the European Parliament and the Council of 25 February 2015, COM (2015) 82 final, “Achieving the 10% electricity interconnection target — Making Europe’s electricity grid fit for 2020”, thanks to PCIs in the UK, comprising internal lines and ensuring interconnections with Belgium, France, Ireland and Norway, the UK would reach the 10% target and its interconnections would be less congested. Brexit will obviously prevent the achievement of this objective and will isolate the British market, making it more vulnerable, less sustainable and less competitive. – Exclusion from the system of cross-border interconnections to achieve a single energy market Brexit means that energy exchanges by way of interconnections with the UK will be regarded as “international exchanges” or exchanges with third countries, which in Member States such as Spain are subject to government authorisation.