Adviser trade body urges firms to consult with European national regulators as a future without passporting or equivalence looms.
The rollercoaster ride that is the Brexit trade talks between the UK and the EU continues.After a brief pause when the UK walked away from negotiations, intensive talks have re-commenced, with the aim of agreeing a comprehensive free trade deal between the two sides that will take effect when the current transition period ends on December 31.
Prime Minister Boris Johnson MP has warned the UK business community that they need to be prepared for the possibility of “no deal”.
However, whatever transpires from the talks between Lord David Frost and Michel Barnier and their negotiating teams in the coming weeks, any deal will only be a ‘free trade’ deal. For the financial services industry, it’s no exaggeration to say that “no deal” is approaching fast, as there will no longer be any formal pan-European regulatory arrangements. No one is expecting the existing financial services passporting regime to continue, or for any similar arrangement to replace it. The passporting scheme allows a firm based in one EU member state to trade in other member states without requiring authorisation from each national regulator, and the UK remains part of the passporting arrangements until the transition period expires.
Trade association The Personal Investment Management and Financial Advice Association (PIMFA) warns in its latest Bulletin that firms with a presence in the EU need to be making detailed preparations for what will be a significant change. Their advice is:
“The negotiations on the terms of the future relationship between the UK and EU are ongoing but regardless of the outcome of the talks, firms with an EU footprint will need to adjust to operating from a third country in relation to the EU and decide how to access and operate on behalf of clients living in the EU.
“Retail financial services firms cannot rely on a pan-European set of rules for servicing customers in the EU and, with passporting lost and no equivalence available in the retail investment sector, the options for PIMFA firms to continue cross-border trade with the EU are limited and mostly dependent on the approaches adopted by national regulators in the EU Member States.
“The rules that Member States will apply to cross- border trade post Brexit are mostly third country rules, not specific Brexit rules. The FCA advises firms in the retail financial services sector who wish to continue to serve clients in the EU to speak to local regulators and ensure they understand the national regulator’s approach and the impact it will have on their business post Brexit transition.”
The Financial Conduct Authority has a Temporary Permissions Regime (TPR). This allows an EU firm to continue operating in the UK within the scope of its current permissions for a limited period after the end of the transition period. While the firm operates under the TPR, it can then arrange its application for full authorisation from the FCA to operate in the UK in the longer term.
In the short term, one of the things about which PIMFA is asking firms to consult national regulators is whether they have put in place any similar arrangements. For example, if a UK firm trades in France, does the French regulator have their own TPR to allow the UK firm to trade in France for a limited period before being required to obtain full authorisation from the French regulator?
(For the record, the answer is No – France does not have its own equivalent of the TPR. EU member states that do have an equivalent scheme include Belgium, Denmark, Germany, Ireland, Netherlands, Portugal, Spain and Sweden, but the precise terms and conditions of these national arrangements vary).
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed by Northern Provident Group and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article.