The financial services sector remains a key Brexit battleground and as the negotiations continue, it seems that the EU is unlikely to surrender all the benefits of the powerhouse financial services centre that London has become.
Commenting in the Financial Times (July 2018), Phillip Hammond was keen to point out the all-round benefits of the UK and EU continuing to work closely together.
However, with an agreement yet to be reached, a consideration of how UK and EU firms will be able to continue to operate across the block – also known as ‘passporting’ – will be a key matter for discussion. The PRA and FCA have set out how they will allow EU based financial services entities to continue to access the UK market by creating the ‘Temporary Permissions Regime’ (TPR).
What about UK Financial services firms?
Whilst this is good news for EU firms working in the UK, it does not impact upon UK firms. Therefore, anyone who is currently utilising their passporting rights to trade in the EU will need to consider the potential impact of various scenarios.
Brexit happens on 30th March 2019. It is possible that from this date all passporting rights are withdrawn and UK firms will no longer be able to access the EU market. Businesses should understand what potential impact this may have and how to reduce the effect. For example:
Could a subsidiary on the continent or in the Republic of Ireland help?
How should all this be communicated with your customers?
The UK and EU did agree to an ‘Implementation Period’ in March 2018, and this means that UK firms may continue to passport until the end of 2020 as EU law would remain in place. In theory during this time the two parties will sort out the finer details. You may ask why the 30th March 2019 date matters then? Well this agreement is still ’subject to further negotiation’ and isn’t yet guaranteed.
So why bother making plans?
If you utilise passporting then you need to take steps to protect your business. Whilst the implementation period may start without a hitch, what we have heard through the process so far doesn’t fill me with confidence. Get a plan in place before the 30th March so you can sleep easy!
So, what if you don’t manage to get a plan in place and we go into ‘implementation’? Well, you will be fine for the time being, but the 2020 cut-off date will come around very quickly, so don’t take your foot off the gas; power though and get it sorted!
The importance of the continued relationship between the UK and EU is significant to the UK and following the announcement of the implementation period agreement, there was a lot of positive comment from the sector. In my opinion, the EU is digging its heels in and hoping that UK firms will get scared and leave London for Frankfurt or Dublin. The UK is going to have to be flexible and protect itself at the same time – it is a near impossible balance and the end result is not yet clear. Whatever happens, it is early preparation that will protect your business.