UK government preps banking and fintech for no Brexit deal
The UK government has unveiled its contingency plan for banking, insurance and other financial services in case there’s a no Brexit deal after 29 March 2019.
Despite this plan unveiled today (23 August), it’s keen to insist all is well.
The government explains: “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.
“Negotiations are progressing well and both we and the EU continue to work hard to seek a positive deal. However, it’s our duty as a responsible government to prepare for all eventualities, including ‘no deal’, until we can be certain of the outcome of those negotiations.”
However, just in case things don’t work out, it wants to keep banks and fintechs cool, calm and collected with a series of technical notices. More on that in a moment.
As you probably know, the majority of the UK’s financial services legislation currently derives from EU law.
Firms, financial market infrastructures, and funds authorised in any European Economic Area (EEA) country can carry out many activities in any other EEA country through a process known as “passporting”, as a direct result of their EU authorisation, or via similar arrangements.
In a ‘no deal’ scenario, UK firms’ position in relation to the EU would be determined by the relevant member state rules and any applicable EU rules that apply to third countries (countries outside of the EEA) at that time.
But there will be instances where it diverges from this approach.
One example the government cites is its commitment to introduce a temporary permissions regime (TPR) that will allow EEA firms currently passporting into the UK to continue operating in the UK for up to three years after exit, while they apply for full authorisation from UK regulators.
In addition, the government will also be bringing forward legislation to deliver transitional arrangements for central securities depositories, credit rating agencies, trade repositories, data reporting service providers, and systems currently under the settlement finality directive.
There is no space to outline every technical notice, but the government explains what happens to EEA firms that provide deposit taking and retail banking services in the UK via a UK-authorised subsidiary. There will be no change to their UK authorisation as a result of the UK leaving the EU, and they will be able to continue providing services.
In this scenario, UK-based payment services providers would lose direct access to central payments infrastructure – such as Target2 and the Single Euro Payments Area (SEPA).
The cost of card payments between the UK and EU will likely increase, and these cross-border payments will no longer be covered by the surcharging ban.
If you want more details – such as on funds, financial market infrastructure (FMI), and data sharing; the full announcement from the UK government is here.
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