On 23 August 2018, the Government published a collection of material on how to prepare if the UK leaves the EU with no deal. These technical notes include one on banking, insurance and other financial services published by HM Treasury.
The purpose of this technical notice is to provide stakeholders (including personal and business customers of financial services firms and funds, and financial services firms, funds and financial market infrastructure) with information about the impact of the UK leaving the EU without a deal, and the Government’s approach to ensuring that the UK has a functioning financial services regulatory framework in any scenario.
The technical notice includes sections on:
- the position after 29 March 2019 if there is no deal: among other things, this section states that when the UK leaves the EU, it will be outside of the EU’s framework for financial services regulation. In a no deal scenario, UK firms’ position in relation to the EU would be determined by the relevant Member State rules and any applicable EU rules that apply to third countries (countries outside of the EEA) at that time. The UK will also, in general, default to treating EEA states and EEA firms largely as it does other third countries and their firms. However, the Government has confirmed that there will be instances where divergence does take place in order to ensure that a functioning legislative regime is in place, to minimise disruption and avoid material unintended consequences for the continuity of financial services provision, to protect the existing rights of UK consumers, or to ensure financial stability;
- individual and business customers - UK-based customers of UK based providers: among other things, this section states that for UK-based (individual or business) customers accessing domestic services in the UK provided entirely by UK-based providers, there is unlikely to be any change as a result of exit. If UK customers will be affected by their firm’s planning for exit, then this should be clearly communicated to customers by the firm. Some EEA firms that provide deposit taking and retail banking services in the UK do so via a UKauthorised subsidiary. There will be no change to their UK authorisation as a result of the UK leaving the EU, and they will be able to continue providing services. However, in this scenario, UK-based payment services providers would lose direct access to central payments infrastructure, such as TARGET2 and the Single Euro Payments Area (SEPA), which means that customers (including business using these providers to process euro payments) could face increased costs and slower processing times for Euro transactions. The Government is looking to align payments legislation to maximise the likelihood of remaining a member of SEPA as a third country. The cost of card payments between the UK and EU will likely increase, and these cross-border payments will no longer be covered by the surcharging ban;
- individual and business customers - UK-based customers of EEA firms operating in the UK: for UK-based customers who access banking, insurance, investment funds and other financial services with EEA firms currently passporting into the UK, the temporary permissions regimes will enable these firms to continue to provide those services to UK customers for up to three years after exit;
- individual and business customers - EEA customers (including UK citizens living abroad) of UK firms operating in the EEA: among other things, this section states that, in the absence of action from the EU, EEA-based customers of UK firms currently passporting into the EEA, including UK citizens living in the EEA, may lose the ability to access existing lending and deposit services, insurance contracts (such as a life insurance contracts and annuities) due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services. This could impact these firms’ ability to continue to service their existing products. The Government has committed to putting in place unilateral action, if necessary, to resolve these issues as far as possible on the UK side;
- financial services firms and funds: among other things, this section states that HM Treasury is continuing to engage with stakeholders as it drafts the legislation, under the EU Withdrawal Act 2018, to ensure that there is a fully functioning financial services regulatory framework at the point where the UK leaves the EU. At this stage, firms should continue to plan on the basis that an implementation period will be in place from March 2019 to December 2020, and continue to follow guidance from the regulators;
- financial market infrastructure: among other things, this section states that there will be no need for UK-based clearing members (and, for example, UK-based clients of UK clearing members) using UK central counterparties (CCPs) to take any action as a result of EU exit. To ensure that there will be no significant impact for UK-based users of non-UK CCPs (including EEA CCPs) as a result of EU exit, the Government has provided for a temporary regime that will enable non-UK CCPs to continue to provide services to the UK for a period of up to three years. This section also gives information in relation to settlement, trading venues, credit rating and market operators;
- data sharing: the Government will publish a technical notice on transfers of personal data between the UK and the EU. Organisations that receive or transfer personal data between the UK and the EU (including financial institutions) should refer to this document for further information on preparing for the UK leaving the EU without a deal.
Links are also provided to relevant Financial Conduct Authority, Bank of England and Prudential Regulation Authority documents.