The UK Government has now published a Technical Notice giving guidance to the banking, insurance and financial services sector on the scenario where the UK leaves the EU in March 2019 without an agreement – that is to say a ‘no deal’ scenario.
The Notice is short on new announcements but draws together in one place the significant steps that the UK Government and regulators will take to protect EEA firms operating within the UK and UK customers of EEA firms if passporting rights cease abruptly.
The measures include a commitment that EU firms and market infrastructures will, subject to making notifications, be able to continue to operate within the U.K. for up to 3 years after March 2019 under temporary arrangements. Importantly, the validity of contracts already running between U.K. customers and EEA firms will be recognised.
These steps are to be welcomed and represent a sensible, pragmatic approach to protect market participants. They stand in stark contrast to the EU’s failure (to date) to propose equivalent measures to protect EEA customers and EEA operations of UK firms.
The EU approach has been to suggest that UK firms need to obtain new regulatory licences by March 2019, and there is uncertainty as to the validity of contracts concluded with UK firms during the UK’s period of EU membership. Whilst the City has been taking steps to ready itself for such an outcome, it remains unclear whether this can be fully achieved in the time available.
There are limits to what the UK can achieve unilaterally and in the absence of reciprocal measures from the EU there is likely to be disruption. But the UK’s measures will go some way to mitigate the risks on the UK side.
The Notice contains a few specific points of note. The Government accepts that for payments, there may well be an impact from exit, with the cost of cross-border card payments likely to increase and such payments no longer covered by the surcharging ban. For asset management, there is optimism that delegation models will be able to continue and the Government has said that UK managers of EEA funds should plan on that being the case for now. Finally, the statement that UK firms may not be able to trade certain equities and derivatives on EEA trading venues post-Brexit indicates that the UK may take a “tit for tat” approach in this area.