With the continuous back and forth regarding Brexit this year, a third ‘Brexit – deadline’ extension, and a UK Election on the horizon, it’s proving very difficult for businesses across all UK industries to plan effectively.
One aspect of business that firms within the UK financial services industry are struggling to plan for is Passporting. So, what effect will Brexit have on Passporting, and what can you do to be prepared?
What is Passporting?
Regulatory and supervisory standards across the financial services industry are shared throughout the EU. Firms in one country can apply to their national competent authority for a range of ‘Passports’ which show they meet these given standards.
Many have asked what might some of the alternative scenarios be should the UK leave the single market, in which case Passporting will no longer be an option?
No-Deal – WTO rules?
The British government has acknowledged that with no exit agreement in place, the EU would consider the UK “a third country for all purposes”. Trade rules would change from those of the European Union to those of the World Trade Organisation (WTO). However, adopting WTO rules would lead to significant limitations and regulatory requirements, since they can be expanded by the States at all times on the basis of ‘prudential reasons’. This could in turn leave the UK with very little or no real control over their future financial deals.
A ‘Norwegian-style’ alternative?
Another alternative that has been proposed is the ‘Norwegian-style’ option. Here the UK would maintain their membership within the European Economic Area and adhere to all of its rules. The issue here isn’t how Passporting would work (since it would stay the same in this instance) but more to do with the improbability of this option ever happening due to the UK being unwilling to compromise on issues around immigration with the EU.
A ‘Swiss-style’ option?
Another possibility that has been suggested is a ‘Swiss-style’ option. However, this would likely be extremely difficult, with the UK looking to negotiate with the EU under a completely different set of circumstances than the Swiss. Proponents may have hoped that the UK could take advantage of the EU’s ‘third country equivalence rules’ which allow non-member state firms to perform some of the functions allowed by Passporting. However, as Anthony Browne, the then-CEO of the British Bankers’ Association explained in 2016 , ‘the EU’s “equivalence” regime is a poor shadow of Passporting; it only covers a narrow range of services, can be withdrawn at virtually no notice and will probably mean the UK will have to accept rules it has no influence over’.
Should a no-deal Brexit occur, businesses and organisations can take some comfort in the fact that the UK has finalised its ‘onshoring’ process. This means that all directly applicable EU law has been converted into UK law, providing the UK authorities and regulators with the necessary powers to help ensure a smooth transition to the new regime. These laws would come into effect the day we leave the EU.
Unfortunately, one of the major predicaments that UK industries and organisations continue to be faced with is that major business and organisational decisions have been largely postponed until a final decision regarding Brexit has been made. With the UK’s Brexit ‘deadline’ having now been extended a third time, from 31 October until potentially 31 January 2020, and a UK election looming, the uncertainty continues. Therefore, technically any, or none, of the above scenarios could yet become reality.
How We Can Help
Richdale was established with a commitment to ensure that all the financial services firms that we support are suitably equipped to provide their clients with the very highest standards of service, in a fully compliant manner, no matter what the political or economic ‘weather’. Since our inception, we have remained committed to supporting all of our clients, including appointed representative and directly authorised firms with contingency plans for the ‘unknown’, including whatever and whenever the financial outcome of Brexit turns out to be.
If you have any questions or concerns regarding Brexit, or the impact on your firm, or should you have received any Brexit-related advice or information from the FCA or the UK Government, please do not hesitate to get in touch with us. We would be delighted to provide you with our guidance and propose a plan to help your firm safely navigate Brexit, or any other regulatory terrain, during these uncertain times.