“Naturally we have got to consider the alternative possibility, that the EU does not match our ambition and pragmatism, and we do not reach a deal. Let me be clear about this: This is not what we want, and it’s not what we expect. But we must be ready.”
Those were the words of Brexit secretary Dominic Raab, who is back from Brussels following a further round of talks with European Union chief negotiator Michel Barnier. In his speech on August 23 – the day the government published the first batch in a series of technical notices, including one for financial services – Raab outlined why the government is planning for ‘no deal’, saying it has a responsibility to prepare for every possible outcome.
“In the notices themselves, we set out clear steps that public institutions, companies, and people should take or consider taking, in order to avoid or mitigate or manage the risk of any potential short-term disruption,” said the Secretary of State for Exiting the European Union. “The overarching aim of the notices is to facilitate the smooth, continued functioning of business, transport, infrastructure, research, aid programmes, and funding streams that have previously come from the EU.
“In some cases, it will mean taking unilateral action to maintain as much continuity as possible at least in the short term, in the event of no deal, and irrespective of whether the EU reciprocates in practice.”
A total of 25 notices were released yesterday.
What the notification on financial services says
The technical notice started out with an offer of assurance that the ‘no deal’ scenario remains unlikely. It cited the mutual interests of the UK and the EU in securing a negotiated outcome, adding that discussions toward a positive deal are progressing well.
“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,” read the new guidance. “For two years, the government has been implementing a significant programme of work to ensure the UK will be ready from day one in all scenarios, including a potential ‘no deal’ outcome in March 2019.”
The notification on banking, insurance, and other financial services discussed in detail the implications for firms, individuals, and business customers in the absence of an agreement with the EU.
“How customers of financial services firms will be affected will depend on where they are based, where their firm is based and under what regulatory authorisations they operate, and the services that they access,” it noted. “If action by customers is needed, then firms should communicate this to their customers at an appropriate time.”
For instance, in the case of UK-based customers who access financial services with European Economic Area (EEA) firms currently passporting into the UK, the notice said the temporary permissions regimes will enable these companies to continue to provide the services for up to three years after exit – allowing time for them to apply for authorisation to continue operating in the UK.
“By contrast, in the absence of action from the EU, EEA-based customers of UK firms currently passporting into the EEA, including UK citizens living in the EEA, may lose the ability to access existing lending and deposit services, insurance contracts (such as a life insurance contracts and annuities) due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services,” read the paper. “This could impact these firms’ ability to continue to service their existing products.”
In the guidance, the government also cited its commitment to putting in place unilateral action, if necessary, to resolve the issues as far as possible on the UK side.
“However, the UK authorities are not able through unilateral action to fully address risks to the EEA customers of UK firms currently providing services into the EEA using the financial services passport,” it said. “The government is committed to working with EU partners to identify and address such risks.”
Following the release of the financial services technical notice, the likes of the Association of British Insurers (ABI) and UK Finance expressed their take on the matter.
“Leaving the EU without a deal would cause major inconvenience to millions of pensioners, travellers, and drivers,” commented Hugh Savill, ABI director of regulation. “We urge the government to agree a deal as a matter of urgency.”
Savill said the paper emphasises the risk of insurers not being able to make payments to EU-based customers after the end of March 2019.
“Obviously insurers want to meet their commitments to their customers, but this problem has the potential to affect millions of insurance customers, including UK pensioners overseas,” he stated. “It can be fixed by cooperation between the UK and EU regulators – if the EU authorities wish to do so.
“Insurers have, of course, been making contingency plans for their own operations for many months now, but this contract issue is not one that insurers themselves can fix.”
Meanwhile UK Finance chief executive Stephen Jones believes the ‘no deal’ scenario can and should be avoided. UK Finance is the trade association for the finance and banking industry operating in the UK.
“Both the UK and our EU partners should focus on agreeing a managed exit and a clear framework for cross-border trade including in financial services,” said Jones. “However, it is right that contingency plans are made to minimise disruption for consumers and businesses on both sides of the Channel in the event of a ‘no deal’.
“The government is taking a pragmatic approach to addressing critical cliff-edge issues and to ensure consumers and businesses can continue accessing vital cross-border services. However, these issues cannot be addressed by the UK acting alone.”
In Jones’s view, it is therefore vital that both sides of the negotiation work together to agree solutions.