Belgian Brexit Law approved by Parliament
Yesterday, 28 March 2019, the Belgian parliament approved the law on the withdrawal of the UK from the European Union (the Belgian Brexit Law). The Belgian Brexit Law forms part of a number of measures taken by the Belgian government to prepare for a Brexit without a withdrawal agreement.
This briefing focusses on the impact on financial services of the Belgian Brexit Law. Chapter 1 of Title 6 (Finances) provides measures in relation to the provision of financial services post Brexit. It aims to respond temporarily to the main difficulties posed by Brexit by (i) amending the law of 25 October 2016 on the access to the investment services business and the status and control of portfolio management and investment advisory companies (the Investment Services Law) and (ii) granting powers to government to take further measures in relation to regulated markets, MTFs and OTFs and in relation to contract continuity.
Cross-border regime for investment services
The existing cross-border regime for third country firms is confirmed and clarified additional rules may be adopted
The Investment Services Law already provided a regime whereby third country firms can provide cross-border investment services in Belgium under certain conditions. The regime requires that (i) a notification is made to the Financial Services and Markets Authority (the FSMA), (ii) the services are only provided to per se professional clients and expatriates, and (iii) there is reciprocity in relation to the market access of Belgian firms in the relevant third country.
Upon Brexit, the UK will qualify as a third country under these rules and the FSMA clarified that temporary permissions regime for EEA firms providing cross-border services in the UK as announced by the British government in December 2017 and applied by the FCA would be sufficient to satisfy the reciprocity condition, as long as this temporary regime is in force.
The Belgian Brexit Law clarifies that this regime is applicable in case of both investment services and investment activities.
In addition, a more substantial amendment is made to the Investment Services Law. This amendment grants powers to government, upon prior advice of the FSMA, to impose additional rules on third country firms providing investments services and activities in Belgium on a cross-border basis. These rules should be aimed at protecting the interests of Belgian investors and preserving the proper functioning, integrity and transparency of financial markets in Belgium. Government may, to a certain extent, align the rules for these third country firms to the regime applicable to EEA firms.
In particular, government may adopt rules on data retention and reporting of transactions in financial instruments, which would take into account the provisions of MiFIR and other EU texts as applicable to EEA firms.
Regulated markets, MTFs and OTFs
A Belgian regime may be adopted for third country regulated markets, MTFs and OTFs
The Belgian Brexit Law grants powers to government, upon prior advice of the FSMA and the National Bank of Belgium (the NBB), to regulate the operation of regulated markets, MTFs and OTFs in Belgium by operators of a third country, such as the UK. Government may set out criteria under which such activities are considered to be conducted in Belgium, specifically in case provisions are made allowing users, members or participants in Belgium to access and trade on these markets.
These measures should be aimed at aligning the regime applicable to EEA markets with the regime applicable to these third country markets.
Measures to guarantee contract continuity may be adopted
The Belgian Brexit Law empowers government to take measures to safeguard the ongoing performance of contracts entered into prior to Brexit by financial institutions established in the UK. This relates in particular to credit institutions, investment firms, (re)insurance undertakings, payment institutions, credit providers, ICBs, fund managers and financial or insurance intermediaries established in the UK.
Upon a Brexit without a withdrawal agreement, these institutions will lose their authorisation to provide services in Belgium, unless an exemption, such as the crossborder regime for investment services, can be used. There are no EU rules setting out the legal consequences of the loss of the EEA passport on the validity of contracts entered into prior to this loss.
The continuity of these contracts could thus be called into question. The mere execution or the occurrence of `life cycle events' (eg the renewal of the contract or the modification of an essential obligation of the contract ) could imply the provision of a (new) service or activity triggering authorisation in Belgium. This would be problematic, even detrimental, for the customers or counterparties concerned, in particular for contracts that involve the provision of financial services on a continuous basis.
To avoid any uncertainty, government, upon prior advice of the FSMA and the NBB, may take the necessary measures to secure contract continuity. The Belgian Brexit Law refers to these measures in a non-exhaustive way. Government could, among other things, grant the required authorisation to the third country firms or grant equivalence with EEA firms within certain limits (in time, or otherwise). Government may also define which lifecycle events should be considered as the provision of a new service for which authorisation would be required.
At this stage, there is no visibility on the measures which government will adopt in this respect.
FSMA Communication on the provision of investment services and performance of investment activities in Belgium by companies governed by the law of the United Kingdom after entry into force of Brexit
On 21 February 2019 the FSMA issued a communication (i) describing the system that applies in Belgium to UK investment firms post Brexit and (ii) examining the issue of the impact of Brexit on the continuity of contracts in force, entered into in Belgium by UK investment firms.
(i) Existing regimes for third country firms
The FSMA refers to the existing regimes for third country firms to provide investment services in Belgium :
- by establishing of a branch in Belgium; and
- by providing cross-border services in Belgium (regime as amended by the Belgian Brexit Law).
In this regard, the FSMA requests the UK firms that are active in Belgium, to inform the FSMA, as of now, if they intend to pursue their activities in Belgium and, if so, under which regime.
(ii) Contract continuity
The FSMA refers to the issue of contract continuity post Brexit and the solution provided in the Belgian Brexit Law.
The FSMA clarifies that, in relation to derivative contracts, UK firms should be able to continue to hold and honour existing derivative contracts after Brexit without having to obtain a Belgian authorisation, on the condition that there is no life cycle event that ensues in a new contract or at least a substantial amendment to the contract.
The FSMA further sets out that it is however still too early to make any statements on measures that may be adopted by government on the subject. Considering that the illegal provision of investment services and the illegal performance of investment activity is punishable by criminal sanctions in Belgium, and subject to measures to be taken by government on the subject, the FSMA requests the firms concerned to provide proof of caution in their analyses.