Brexit has always meant the end of financial service passporting for UK firms, and hundreds have set up or expanded offices in an EU27 country to serve EEA-based customers. Meanwhile, EU banking and securities authorities continue their warnings to those firms and national EU27 regulators that such 'EU hubs' must be genuine, rather than merely facades that continue to rely on UK management and operations. Failing to heed these warnings can result in the EU hub entity losing its authorisation.
In addition, while over 300 UK firms have established such hubs, many are yet to actually transfer their EEA customer contracts/relationships to those hubs. Similarly, firms based in the EU27 may have set up UK hubs that are not yet actually trading (although the UK temporary permissions regime for EEA-based firms operating in the UK is a bit more forgiving). No doubt they are hoping that Brexit is cancelled and the transfers don't need to proceed. But with Brexit Day already extended by 10 months, the risk is that such firms will have failed to use their new authorisations and they may be withdrawn by local regulators.
Of course, some firms have remained hopeful of never having to set up an EU hub. Chances are they will not be able to get authorised in time, if and when Brexit Day arrives, in which case agency might work while they apply.
This also underlines the fact that any form of Brexit means 'No Deal' for services, which are not covered by free trade deals to the extent that EU membership enables the free movement of services.
Financial regulatory authorisations aside, the steps you can take if your services are impacted by Brexit will depend on threats and opportunities identified, and we have previously outlined an approach to 'Brexit-proofing', but examples include:
- consider the incentives offered for setting up a new subsidiary in an EU27 member state;
- consider the impact of visa and immigration requirements (bearing in mind the Common Travel Area);
- Rewrite contracts with new governing law and other pertinent changes;
- Establish a new basis for transferring personal data from EU customers/suppliers to the UK;
- Consider the tax impact of moving business activity to an EU27 country (for instance, whether there might be a capital gain, tax on profits moving offshore, or an impact on withholding tax exemptions).
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As a result of Brexit, the European Securities and Markets Authority (ESMA) has entered a “completely new area of supervisory convergence” to avoid unfair competition, its chair Steven Maijoor told the European Parliament on Monday.