Brexit: What do customers of British Financial Institutions in Germany need to know?

With no foreseeable positive decision regarding Brexit, a so-called No-Deal Brexit is most likely. What does this mean for customers of British financial institutions, the European Passport and is German banking supervision prepared?

The United Kingdom’s withdrawal from the European Union, Brexit, is after an initial first extension scheduled for April 12th, 2019 with possible further extensions to June 30th or beyond. Once carried out, it is likely to have a significant impact on both European and British financial institutions and supervisory agencies. Many British financial institutions operate in the European single market through a so-called European Passport. The originally proposed Brexit Deal recognized a lengthy transition period during which the European Passport would remain valid until the end of 2020. This would have arranged for sufficient time for financial institutions to implement necessary structural adjustments to maintain access to the single market after the transition period elapsed.

With the British Government and House of Commons in disagreement over the Brexit Deal, however, this provision is in jeopardy as a No-Deal Brexit – a withdrawal without any agreement – is more and more likely with every passing day. Without the European Passport, British financial institutions lose their license to operate in Germany and other European Union member states – with a wide set of consequences for the customers of the affected institutions.

Mitigating Measures in case of a No-Deal Brexit

The German legislator has already taken mitigating measures for the case of a No-Deal Brexit through the Act on Taxation-Related Brexit Provisions. The Act formulates amendments to both the German Banking Act (Kreditwesengesetz – KWG) and the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and authorises BaFin to implement a transition period similar to the original transition period proposed in the draft Brexit Deal. A transition period may be implemented in case it is necessary to ensure the functioning or stability of financial and payment transactions markets. The European Passport would thus remain to be applicable to all transactions within Germany and with a close relation to existing contracts. Customers of British financial institutions would not see a change in day-to-day operations or the execution or even replacement of their contracts, should BaFin decide in favour of a transition period. BaFin already released public statements indicating it would cautiously make use of its authorisation. Such measures would naturally be restricted to Germany and do not substitute the European Passport for other countries. 

Regarding investment funds from the United Kingdom, BaFin issued a statement that such investment funds can continue to be marketed in Germany if in each case a notification procedure is completed for the marketing of third-country funds under section 320, 329 or 330 of the German Investment Code (Kapitalanlagegesetzbuch – KAGB). The respective applications can already be submitted to BaFin. The scope is again limited to Germany.

Additionally, BaFin declared the wish to cooperate bilaterally with the British Financial Conduct Authority (FCA). The agencies negotiated a Memorandum of Understanding (MoUs) – a common means to formalise international inter-agency cooperation – to arrange the future exchange of significant market data.

Relevant Brexit Information compilation for customers

The FCA published guidance notices and recommended procedures for British financial institutions in case of a No-Deal Brexit. British banks are urged to take precautions to not lose access to the European market as well as actively inform customers if and how they plan to continue their services. Most British financial institutions have already taken such action with regard to their German customers.

BaFin published specific, audience-oriented FAQs for both consumers (only German) as well as for banks and financial services institutions (English and German) that in their entirety answer most questions for professional clients.

The Federal Association of German Banks keeps a (German) dossier which provides relevant quotes, statements, interviews, blog pieces and news of the association regarding Brexit.

The British banking association UK Finance, on its website, offers an extensive compilation of Brexit-related materials as well as daily articles, impact analyses, reports and statements regarding FCA consultation processes.

The European Banking Federation (EBF) provides a list of relevant European agencies and institutions, trade associations, consumer associations as well as national banking associations which offer or collect Brexit-related information.

The ratification of a comprehensive Brexit Deal would, not just for the financial sector, surely be economically and financially preferential to any other Brexit scenario. The amount of information that is available for any scenario may be overwhelming, but is manageable with the right guidance and the impact for customers of British financial institutions, however, is as contained as possible and (temporarily) attenuated. It is important to understand that any nationally administered transitional period is to be treated as such, and all applications, notifications etc. need to be followed through in accordance with the national law of every EU member state. With all these impediments in mind, the financial sector is as prepared as possible.


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