The UK government has released a guidance document that outlines a contingency plan for banking, insurance and other financial services in the event of Britain leaving the European Union (EU) without reaching a deal by March next year.
London is confident of striking a deal with Brussels before the deadline ends. However, it intends to make plans to accommodate all possible scenarios, including a no-deal, to prevent turmoil in the financial services sector.
In a statement, the British government said: “A scenario in which the UK leaves the EU without agreement (a ‘no deal’ scenario) remains unlikely given the mutual interests of the UK and the EU in securing a negotiated outcome.”
Currently, the majority of the legislation pertaining to the UK’s financial services sector derives from EU framework.
Based on existing system, firms, financial market infrastructures, and funds authorised in one European Economic Area (EEA) member state can provide services to customers in other member states, through ‘passporting’ without the need for obtaining authorisation from the local regulator.
Post Brexit, the UK will no longer be within the EU’s framework for financial services regulation.
If a deal is not reached, the status of the UK businesses in the EU would be determined by the rules applicable in the member states and other EU rules applicable to countries outside the bloc.
Same is the case with EEA firms operating in the UK, with the UK government subjecting them to the same set of rules for any firm from third countries.
However, the government pointed out that there could be specific exceptions to ensure continuity of financial services provision and financial stability.
The UK has committed to introduce a temporary permissions regime (TPR) under which EEA firms currently passporting into the UK can continue their operations in the country for a period of up to three years after Brexit.
During this period, the EEA firms can apply for full authorisation from UK regulators.
Relevant legislations will be introduced to deliver transitional arrangements for central securities depositories, credit rating agencies, trade repositories, data reporting service providers, systems currently under the settlement finality directive, and depositaries for authorised funds.
The document also highlighted that EEA firms providing deposit taking and retail banking services in the UK would continue to do so as the exit will have no bearing on their authorisation in the country.