22 APRIL 2016
Author:
Jacob Ghanty
+44.(0)20.7360.8211
jacob.ghanty@klgates.com
K&L Gates Brexit Task Force
Clients can contact the firm with
questions about the consequences
of Brexit by email at
brexit@klgates.com
K&L Gates LLP. Global legal counsel across
five continents. For more information, visit
www.klgates.com.
BREXIT: Implications for Financial Services
Firms
Introduction
Much of the regulation of financial services in the UK is governed by EU
law. This includes the regulation of banks, broker-dealers, insurers and
reinsurers, insurance intermediaries, fund managers, mortgage providers
and intermediaries, e-money issuers and payment service providers.
Therefore, a Brexit would mean that financial institutions with operations
crossing UK and EU borders would become subject to a new regulatory
regime. The precise implications of a Brexit will depend on a variety of
factors, including the arrangements that the UK implements to govern
cross-border business between the UK and the remaining countries of the
EU and the extent to which the UK government chooses to retain legislation
that is based upon EU law. It seems unlikely that Britain leaving the EU
would result in a reduced regulatory burden for firms, since many forms of
regulation have been initiated in Britain and subsequently adopted into EU
legislation. On the contrary, one impact of a Brexit could be an increased
regulatory burden for firms operating in both the UK and EU who potentially
would need to comply with new UK regulations in addition to EU law.
Passporting Regime
An important element of the EU financial services regime is "passporting".
Passporting is the exercise of the right by firms authorised under an
applicable EU financial services directive to carry on activities in another
EEA member state, on the basis of their home state authorisation. Their
activities can be conducted through a branch in the host member state or
on a cross-border services basis.
Many firms have adopted a business model based upon passporting to
conduct their EU-wide operations. Should a Brexit result in the passporting
regimes ceasing to apply in relation to business conducted into and out of
the UK, firms in the UK and the remaining EU would need to consider
whether to operate distinct authorised entities in both the UK and EU,
particularly as the regulators in some EU countries may only accept
applications for authorisation from locally incorporated entities.
Some non-EU financial institutions, which have established subsidiaries in
the UK as a base from which to passport into the EU, might need to
consider whether to move their base elsewhere, whilst potentially also
maintaining their UK entity. However, much will depend on the extent to
which arrangements can be implemented to replicate passporting between
the UK and EU, including whether the UK will be part of the EEA and able
to participate in the arrangements that facilitate the cross-border provision
of financial services between EEA member states.
April / 1
BREXIT BITES
Likely Implications of a Brexit on the Financial Services Sector
Apart from strategic implications for the structure of EU business operations, a Brexit would trigger a host of
practical implications for how financial institutions operate their businesses. For instance, where financial
institutions distribute their products in the UK and elsewhere in the EU, they would need to review product terms,
distribution agreements and marketing literature to consider whether these need to be amended or replaced as a
result of a potential regulatory separation. Furthermore, firms that raise capital on a pan-European basis would
need to consider the implications for their prospectuses and their ability to market securities under a new
regulatory regime.
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