The UK left the EU on 31 January 2020 with a Withdrawal Agreement and entered a transition period which is due to operate until 31 December 2020. During the transition period, EU law will continue to apply in the UK. The UK and the EU have indicated, in a Political Declaration, that they intend to reach agreement on the future relationship between the UK and the EU by the end of 2020.
How firms are affected at the end of the transition period will depend on a number of factors, including any such agreement between the UK and the EU about our future relationship.
UK-based firms that only do business in the UK may be affected less directly than others or not affected at all. However, firms which carry out business between the UK and the European Economic Area (EEA) – whether through a passport or directly under EU legislation – are likely to be affected. This page sets out some considerations that may be relevant in your planning.
The following questions may help you decide whether you conduct business in the EEA and so whether your business might be affected at the end of the transition period. They are not a full checklist.
- Do you currently provide any regulated products or services to customers resident in the EEA? For example, you might provide financial advice to EEA-based customers. Or you might have insurance contracts either with EEA-based customers or which cover risks located in the EEA which require regulatory permission in that country in order to be serviced.
- Do you have customers or counterparties based in the EEA, including UK expatriates now based in an EEA country?
- Are you marketing financial products in the EEA? This includes products marketed on a website aimed at consumers in the EEA.
- Do you have agents in the EEA or interact with any intermediary service providers in the EEA? For example, you may use an insurance intermediary to distribute products into the EEA.
- Does your firm transfer personal data between the UK and the EEA or vice versa?
- Does your firm have membership of any market infrastructure (trading venues, clearing house, settlement facility) based in the EEA?
- Are you part of a wider corporate group based in the EEA, or does your firm receive any funding from an entity in the EEA?
- Do you outsource or delegate to an EEA firm or does an EEA firm outsource or delegate to you?
- Are you party to legal contracts which refer to EU law?
If any of these apply to you – or you currently conduct business in the EEA in any other way – then you will need to understand on what legal basis that business occurs. This is so that, as matters develop during the course of this year, you will be able to assess whether this business can continue on that basis or by other means at the end of the transition period or whether your firm will need additional regulatory permissions. If you aren’t doing business in EEA markets now, you should consider whether you may in future.
If your business takes place based on a passport then you will need to consider if and on what basis you can continue to do business at the end of the transition period. You can find out if your firm uses a passport by checking the Financial Services Register.
Not all these factors will automatically mean your business is affected. This will depend in part on the nature of any agreement on the future relationship between the UK and the EU. There are also other ways firms may be able to access the EEA which may not be affected by the end of the transition period, although these will depend on the specific firm, type of activity and the local jurisdiction in question. These include:
- Permission under local law or based on rules of a local financial market infrastructure.
- Local exemptions in an individual EU country.
- Whether ‘reverse solicitation’ is permitted without local authorisation. This is where the client initiates the provision of the service on their own initiative, and you do not promote or advertise services.
- Whether your activity is covered by an EU decision on the UK’s equivalence.
- Member States may put in place regimes to provide continuity of business for a temporary period.
Servicing your EEA customers
As things stand, you should anticipate a range of potential scenarios at the end of the transition period, including the possibility that the activities that you conduct might not be covered by the arrangements agreed between the UK and the EU. As things develop during the course of this year, you will need to consider how the end of the transition period may affect you and your customers, and what action you may need to take to be ready for 1 January 2021. If you are servicing customers based in the EEA, this will include taking the steps available to you to continue to service them, following local law and local regulators’ expectations.
We are clear that firms’ decisions need to be guided by what is the right outcome for your customers. You must treat customers fairly, irrespective of where those customers are based. In many cases, it would be a poor outcome for the consumer for you simply to stop servicing them. There will be particular situations where significant consumer harm would result if you stopped servicing the consumer: for example for you to withhold payments to customers to which they are entitled.
You should have a clear understanding of your firm’s dependencies on EEA outsourcing or third-party service providers so you can assess whether they will be able to continue providing their services after the transition period.
Payments to and from the EEA
Currently, banks and payment service providers (PSPs) do not need to provide the name and address of the payer when making intra-EEA payments. However, as things stand, this will be required for payments between the UK and the EEA after the transition period. Banks and PSPs should take steps now to ensure you are ready to provide the relevant customer information when making payments after the transition period. This includes direct debit transactions where you are instigating a transaction on behalf of the recipient and yet will still need to have the relevant details of the payer.
Engaging with non-UK regulators
As part of your preparations during the course of this year, you may need to discuss your plans with European regulators to ensure that you will be ready and able to continue to provide services to EEA customers when the transition period ends. Similarly, European regulators will be making their own preparations and may contact you directly about your intentions. In the same way that you deal with us, you should act lawfully and respond to our counterpart regulators as best you can and in a timely manner.