Brexit day one readiness for European banks and investment firms: risk, legal and compliance changes for EU firms under EU law
Dr Alexander Behrens
Frankfurt am Main
Salvador Ruiz Bachs
15 oktober 2019
We examine some of the ways in which a hard Brexit will affect the EU legal and regulatory obligations of EU financial services firms facing or using UK clients/counterparties/market infrastructure.
As we near a potential hard Brexit, UK, EU and international banks and investment firms continue to plan for the exit of the UK from the EU single market. From a legal and regulatory perspective, the primary order of change is the loss of passporting. In our experience EU firms are now generally well prepared for this.
Second order issues then follow in two areas. The first is changes to UK legal and regulatory obligations arising from Brexit – these primarily derive from the UK legal and regulatory regime arising from Brexit. The UK authorities have prepared a considerable volume of materials ‘onshoring’ and making various changes to EU law: as a result EU firms with UK branches are generally aware of the UK legal and regulatory changes that will occur on Brexit date and have been putting in place implementation plans. Our experience is that EU firms which provide cross-border services into the UK without a branch are generally a little less well-prepared.
The second is changes to EU legal and regulatory obligations arising from Brexit. Here, unlike in the UK, there is very little legislative change associated with Brexit – the EU has limited itself to the passing of legislation providing limited transitional relief enabling the continued use of UK CCPs and CSDs for a period post-Brexit, and limited changes to EMIR.
Notwithstanding this, the change in status of UK clients, counterparties and market infrastructure from EU to third country status has considerable consequences for the regulatory obligations of EU market participants which deal with them. Further, because (unlike the UK authorities) the EU authorities have largely declined to offer transitional relief associated with those changes in status, a large number of changes will take effect immediately at the point of Brexit.
This paper draws attention to a few of the major areas of change we have identified that will affect EU firms, focusing on EU legal and regulatory obligations.
Some, but not all, of those changes could be cured by equivalence decisions from the EU or from competent authorities. The examples below are intended to illustrate that EU firms will have substantial compliance work to do to enable them to meet their – largely unchanged – EU law obligations post-Brexit in connection with activities which involve the UK. This paper does not purport to give a complete overview of all changes. There are a myriad of further changes which could affect EU firms. Firms should take legal advice on their position.
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