The UK and the EU agreed a Trade and Co-operation Agreement (TCA) on 24 December 2020 which came into force on 1 January 2021 on 'basis' which is provisional until full ratification. The TCA covers many areas, mainly relating to the sale and movement of goods between the UK and EU and provides a commitment to co-operate in certain sectors such as anti-money laundering and consumer protection.
However, the TCA contains very limited provisions on financial services and does not explicitly cover payments. We set out our initial thoughts below and will follow up with a more detailed alert shortly.
As expected, passporting is no longer in place for UK-authorised firms providing financial services into the EU. Many firms have prepared for this “hard Brexit” for financial services and payment services (for example by creating an EU-authorised entity within their group to handle ongoing service provision to EU customers). By contrast, the UK’s temporary permissions regime provides extensive rights throughout its duration for EU financial service providers to continue providing their services to UK customers.
The TCA includes a joint declaration on financial services co-operation which identifies a joint commitment to preserving financial stability, market integrity and the protection of investors and consumers.
There is also a commitment to agree a memorandum of understanding by March 2021 which will establish a methodology for co-operation relating to financial services. There is, however, very little further information as to what that will mean in practice. It is indicated that it will involve the UK and the EU moving “forward on both sides with equivalence determinations between the Union and United Kingdom” but this is qualified immediately by a statement that it is “without prejudice to the unilateral and autonomous decision-making process of each side”. Clearly neither side is making any commitment here.
Third country equivalence frameworks currently cover investment services under MiFID 2 and fund managers under AIFMD (the EU Alternative Investment Fund Managers Directive) but there are no equivalence frameworks for banking (under the Capital Requirements Directive), payments (PSD 2) or electronic money (EMD 2). So, even if future equivalence arrangements are agreed in principle, in many areas there will be much to be done in order do to implement them in practice. It is also likely that such equivalence will fall some way short of passporting in terms of the ease of cross-border operation which it will facilitate.
UK firms without EU-authorised operations are left unclear as to the extent to which they can continue to deal with EU persons now that passporting is over. The UK’s temporary permissions regime has not been reciprocated by other EU Member States, although at least one EU Member State, namely Spain, has provided a transitional regime to allow UK firms to additional time to obtain authorisation in the EU or terminate their services. The French regulator (the ACPR) has issued a statement confirming the termination of passporting rights and containing a list of the UK-authorised EMIs and PIs which can accordingly no longer continue to provide their services within France (the list is available here).
Different EU jurisdictions apply different tests as to when they consider that a provider of financial services based offshore is deemed to be providing those services onshore and so care will be needed. It will also be important to continue to monitor the ongoing discussions between the UK and the EU as they develop.
If you require further information or have any further questions, please contact our payments team.
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