Brexit: some points for consideration in the weeks ahead

Despite murmurings of the government and opposition coming to an agreement to enable the Withdrawal Agreement to pass, ?uncertainty? continues to be the topic ?du jour? amongst industry participants when it comes to Brexit. Brexit did not take place on 29 March nor 12 April, and we are fast approaching the European elections on 23 May. October is now the nearest point where any form of clarity on the future - or at least the next step - might be unveiled and as long as both (a) the path to a future relationship (i.e. the transition period) and (b) the future relationship itself remain unclear, the industry will continue to assume a ?no-deal? outcome and plan on that basis.

While ?no-deal? planning is of course prudent, organisations could be focusing time and effort on innovation, research, customer service and efficiency improvement. However, EU and UK-based financial service firms are instead continuing to expend effort and energy ensuring they have the correct structures and people in place to maintain some level of customer service across Europe.

Alongside industry preparations, both the EU and the UK have put in place regulatory and legal safety nets to mitigate the impact of ?no-deal? on financial service firms and their customers.

On the UK side, the Financial Conduct Authority (FCA) has opened applications for a temporary permissions regime for inward branching firms. This regime will enable UK branches of EU firms to continue to operate and serve customers in the UK in the event of a ?no-deal? outcome. UK regulators have also acknowledged the potential for broader service disruption in the event of ?no-deal? and intend to provide firms with specific transitional relief with respect to changes to their regulatory obligations in the event that the UK withdraws from the EU without an implementation period.

On the EU side, authorities have observed that there will inevitably be collateral losses or other damage for many citizens and businesses as a result of Brexit, but that no public sector mitigating actions are appropriate unless these are significant enough to give rise to financial stability risk for the EU. This threshold for public intervention is important as customer impact may be overlooked in the interest to only address financial stability issues. As such, the EU level contingency measures announced so far are a helpful step but address only limited elements of clearing-related issues and derivative services, and none of the other key services that businesses utilise such as multi-currency lending, foreign exchange, and payment and cash management services.

While some individual member states are yet to implement their own contingency measures, those that have done so have taken different approaches with contrasting scope of products, services and types of firms included in those measures. This has resulted in a complex patchwork which is not entirely reflective of the needs of EU clients for integrated and packaged solutions.

Here uncertainty overlaps with complexity; given the need for financial service firms to continue to meet their requirements under the legal framework of the jurisdictions of the customers to which they provide products and services, firms may need to determine on a jurisdiction-by-jurisdiction and product and service specific basis whether it is possible to continue to service existing EU-based customers from the UK, and UK-based customers from the EU.. With the patchwork currently proposed businesses and customers in different member states are likely to experience different and sub-optimal outcomes.

While the contingency measures taken to date are a positive step, UK Finance remains concerned that significant gaps exist in product and service provision for EU-based customers of UK-based services. Gaps in customer services layered on top of the existing uncertainty, as well as the regulatory and legal tightrope that firms and customers would face in the event the UK leaves the EU without an agreement, is not in the interest of customers, clients and financial services firms alike.




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