2021: All Change Please
As speculation continues about a potential UK/EU Brexit deal, the UK is preparing for a relationship outside of the EU, whatever the outcome of the ongoing negotiations. With the end of the transition period (31 December) now just days away, the regulatory framework for the financial services sector will look very different in January 2021 regardless, and will continue to evolve as the UK redefines its relationship with the EU.
All passporting rights will be lost when the UK leaves the European single market on 31 December 2020. Firms need to either stop operating in the countries they passport into, or gain separate, ‘local’ authorisation there1.
The Government and the Bank of England have implemented a Temporary Permissions Regime. This will allow EEA firms using a passport to operate for a limited period while they seek authorisation from the Prudential Regulation Authority when the passporting regime falls away at the end of the transition period. This, however, is not a long term solution for continued market access.
The EU, conversely, has not reciprocated by putting in place a similar arrangement. UK-authorised firms passporting into the EU still don’t know whether they’ll be allowed to continue operating as they do now. This however could be avoided if the UK and EU agree rules on access for financial services as part of a trade deal or a Brexit agreement.
Equivalence and Services
The European Commission can grant equivalence to a third country if it considers the country’s laws to have the same intent and produce broadly the same outcomes as those of the EU. With equivalence comes market access. In financial services, though, this is much narrower than the access offered by passporting2.
On 9 November 2020, the Chancellor announced a set of equivalence decisions for the EU and European economic area member states and, subsequently, published a spreadsheet showing that equivalence was being granted to the EEA in 22 areas after the end of the transition period. The 22 areas include access to the UK market for EEA credit rating agencies and investment firms.
There are different equivalence regimes for different financial services, meaning third countries’ have to meet different criteria to secure equivalence for different services. Some financial services, are not covered by existing or incoming equivalence regimes. Trade for these services would revert to World Trade Organization (WTO) terms or need to be negotiated separately in either a free trade agreement or a formal Brexit deal3.
Do I need to do anything?
Even if a deal is struck before the end of 2020, it is not considered possible that a comprehensive agreement on financial services will be agreed in that timeframe. IFoA members are therefore encouraged to consider the potential implications of a ‘no-deal Brexit’ for their roles. If you are impacted by the upcoming changes the IFoA has provided links to useful resources on our main Brexit page, including the latest advice from the Government and Regulators. We have also developed a Brexit Podcast Series which takes a more in-depth look at the various implications of Brexit for actuaries, the industries they work in, and the customers those industries serve.