On 31 January 2020, the United Kingdom (UK)
left the European Union (EU) and entered into
a transition period (otherwise known as an
implementation period).
During this period,
whilst not an EU Member State, the vast majority
of EU law and regulation continues to apply
to the UK. During the transition period the UK
and EU are negotiating the terms of their future
relationship in a free trade agreement the first
draft of which was publicly made available by
the EU on 18 March 2020. As regards financial
services, in the non-legally binding Political
Declaration on the future EU/UK relationship
the UK and the EU have agreed to endeavour
to conclude their respective assessment of
equivalence with respect to each other by the
end of June 2020. Such frameworks allow the
UK and the EU to declare a third country’s
regulatory and supervisory regime equivalent
for relevant purposes including, for example,
market access for investment services.
However, the transition period is set to end
on 31 December 2020 unless both the EU and
the UK agree an extension by 1 July 2020.
Any extension can be for no more than two
years. However, in the UK the European Union
(Withdrawal Agreement) Act 2020 which was
passed earlier this year contains a provision
which prohibits a Minister of the Crown from
agreeing to an extension of the transition period.
With this in mind both the UK and a number
of EU27 states have been making preparations
for the scenario where the UK leaves the
transition period this year without a free trade
agreement and there are no positive equivalence
assessments in place. In some instances these
preparations have involved extending those
measures that were put in place for a no-deal
Brexit last year.
In the UK, the Bank of England (BoE) and
the Prudential Regulation Authority (PRA)
have issued a joint statement relating to HM
Treasury’s intention to ‘shift’ the temporary
transitional power (TTP) so it will be available
for up to two years after the end of the transition
period. The BoE and the PRA intend to use the
TTP after the transition period as previously
communicated in relation to exit day (the
day the UK left the EU). The BoE and the PRA
intend to grant general transitional relief on a
broad basis, with key exceptions as previously
identified, for a period of 15 months after the
end of the transition period (i.e. ending on
31 March 2022). Specific uses of the TTP, in
particular those relating to some of the new
requirements on firms entering the temporary
permission regime, are expected to remain as
previously published. The Financial Conduct
Authority (FCA) has also updated its web page
on the TTP. Like the BoE and the PRA, the FCA
confirms that after the transition period it
intends to apply the TTP on a broad basis and
to the same areas previously communicated.
The FCA intends to grant transitional relief from
the end of the transition period until 31 March
- The FCA states that there are specific areas
where it will not grant transitional relief. In
these areas, it will continue to expect firms and
other regulated entities to take reasonable steps
to comply with the changes to their regulatory
obligations by the end of the transition period.
The detail of how and to what the TTP applies
will be set out in the annexes to the TTP
directions. The FCA will publish updated draft
directions and annexes in due course, which will
include details on the application of the TTP in
relation to new EU legislative requirements that
become applicable during the transition.
The following is a summary concerning
the current position in some of the key
EU27 jurisdictions.
Italy
The EU and the UK have jointly agreed on a transition period during which EU law continues to
apply until 31 December 2020, unless further extended in case of (i) agreement by both parties and
(ii) decision made by 1 July 2020.
As a consequence, the Law-Decree No. 22 of 25 March 2019, which had been introduced to
provide for a transitional regime applicable in the event of a no-deal Brexit (containing provisions
concerning the temporary continuation of certain regulated financial activities and the run-off
of others), will not apply and Consob Communications No. 4 of 14 of March 2019, No. 8 of 29
March 2019 and No. 10 of 1 August 2019, as well as No. 5 of 17 October 2019, must be considered
outdated. Notifications sent by UK investment firms to Consob pursuant to these Communications
are also not valid anymore.
At the end of the transition period, unless otherwise agreed by the EU and the UK (and unless
further transitional measures are adopted), UK entities operating in the EU and in Italy, will be
subject to the legislation relating to third country’s entities.
UK banks, electronic money
institutions, payment institutions,
asset management companies
On April 29, 2020 the Bank of Italy published a Communication
providing guidance on the Italian third-country licensing regime
for those UK firms carrying out business in Italy for which the
Bank of Italy is the competent authority. In addition, the Bank
of Italy urges all UK firms operating in Italy to duly inform their
clients about the actions they have taken in relation to Brexit
and its consequences for existing contractual relationships.
More specifically, the Bank of Italy clarified that:
UK banks and e-money institutions operating in Italy through
a branch (‘branching e-money institutions’), that intend to
continue to operate in Italy at the end of the transition period
shall, in accordance with, and within the limits provided for by
Italian law, acquire a licence as a third-country firm according
to Italian law, before the end of the transition period.
With specific reference to the provision of investment
services by UK banks on a cross-border basis, any activity
vis-à-vis clients other than eligible counterparties and per se
professional clients has to cease. UK banks can only provide
investment services to other clients (e.g. retails) through a
branch. The same regime applies to investment firms, which
in Italy are subject to supervision by Consob (see below).
UK e-money institutions currently operating either under
the freedom of services or through a network of agents
(‘non-branching e-money institutions’), payment institutions,
and asset management companies cannot be licensed to
operate as third-country firms, and are required by law to
cease operations by the end of the transitional period. For this
purpose, they may either:
transfer the activity to a firm authorized to operate in Italy
(either an Italian or an EU firm ‘passported’ into Italy); or
close their activity, in an orderly fashion.
As such, the following categories of entities have a duty to
cease operations by the end of the transition period:
UK banks and branching e-money institutions (i) not
having obtained a license from Italian authorities before
the end of the transition period or (ii) that do not intend
to continue operating in Italy as third-country firms after
the transition period;
UK banks providing investment services on a cross border
basis to clients other than eligible counterparties and per se
professional clients, and
UK payment institutions, UK asset management companies.
Firms that intend to continue operating in Italy either need to:
obtain a licence as a third-country firm, where this is
allowed (i.e. UK banks, except for the offer of investment
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Doing business in the EU after the transition period
services on a cross-border basis to clients other than eligible
counterparties and per se professional clients, and UK
branching e-money institutions); or
transfer their Italian activities to an Italian duly licensed
entity (existing or newly established) or to an EU-licensed
entity ‘passported’ into Italy.
To avoid any discontinuity of services to customers and to
ensure an orderly closure of activity, where required, the Bank
of Italy recommends that:
All UK firms that intend to continue operating in Italy either
as a third-country firm or by transferring their activity to a
newly established Italian intermediary, file an application in
due time, taking into consideration the statutory duration of
licensing procedures (i.e. 120 calendar days) and the regulation
on administrative procedures (which allows extension of the
statutory duration by up to six months if further information is
necessary). As such, if the application is not filed shortly after
this Communication, the intermediaries should be prepared to
guarantee the closure of all activities by the end of the
transition period.
All firms that intend to transfer their activity to an EU
entity ‘passported’ into Italy complete the procedures for
passport notification and transfer of activity by the end of
the transition period.
All firms that intend, or are required, to cease their activity end
their relationships with customers in an orderly fashion by the
end of the transition period, and transmit their closure plans
to the Bank of Italy as soon as possible, using the templates
attached to the Bank of Italy Communication. The intention to
cease operations must also be communicated to the relevant
UK supervisory authorities.
Finally, the Bank of Italy recommends all UK firms currently
operating in Italy to inform customers, pursuant to the Bank of
Italy’s communication of 19 February 2019, of their Brexit-related
initiatives and the related impacts on existing contracts. Firms
that have not already informed their customers are invited to do
so in due time during the transition period.
Trading venues
Consob announced in its Warning Notice No. 4/20 that UK
trading venues that wish to operate in Italy will need to obtain,
as appropriate, a measure of authorisation (as MTF or OTF)
or recognition (for trading venues “equivalent” to regulated
markets) in order to extend their activity in Italy, pursuant to,
respectively, Articles 28 and 70(1)[3] of the Italian Consolidated
Law on Finance.
Those measures are adopted by Consob in the presence of an
“equivalence” assessment of the UK regulatory and supervisory
framework, as well as of a cooperation agreement between
Consob and the Financial Conduct Authority (FCA) of the UK.
In this context, UK market operators wishing to operate in
Italy after the end of the transition period are invited to make a
timely application to Consob for authorisation or recognition, in
accordance with the above-mentioned applicable regime.
In this regard, it is worth mentioning that, in March 2019,
Consob introduced a number of measures to ensure that,
post-Brexit, UK trading venues could operate in Italy (as well
as Italian trading venues in the UK). These measures were
subject to a ‘no-deal’ scenario which, as stated above, did not
materialise.
Moreover, in March and April 2019, Consob received further
requests from some UK trading venue operators in order to
continue operating in Italy after Brexit, and these too were
based on a no-deal scenario.
In light of the above, all UK trading venues that have already
applied for authorisation or recognition in order to continue
operating in Italy on a cross-border basis are hereby invited to:
confirm their interest to obtain clearance or authorisation,
pursuant to respectively, Articles 70(2) or 26(6) of the Italian
Consolidated Law on Finance;
report any changes and/or amendment to the information
already provided under their original filing, by sending the
relevant documentation.
Investment services
Consob in its Warning Notice No. 3/20 of 26 March 2020
communicated that in relation to investment services, in light
of MiFID II/MiFIR, how UK investment firms access the EU
market will depend on the type of clients served (retail/elective
professional or per se professional/eligible counterparties).
By virtue of MiFIR (Articles 46 and 47), third country firms may
operate under the freedom to provide services only to eligible
counterparties or per se professional clients, provided that:
the European Commission (EC) has adopted an equivalence
decision on the requirements in force in the third country;
the intermediary is authorised in the country of origin, and
appropriate cooperation agreements have been established
with the authority of the home country.
In the absence of an equivalence decision by the EC (or if this
decision is no longer in force), each Member State is entitled
to allow the non-EU firm to operate in its territory, even without
the establishment of branches.
The Italian Consolidated Law on Finance (Article 28, paragraph
6) has afforded to third-country firms other than banks the
possibility of operating through the freedom to provide
services, subject to authorisation by Consob, after consulting
the Bank of Italy, when the conditions set out therein are met
and exclusively with per se professional clients and eligible
counterparties. The quoted Italian legislative act, exercising the
option provided for in Article 39 of MiFID II, has prescribed the
establishment of a branch for the provision of services to retail
and elective professional clients, subject to authorisation by
Consob, after consulting the Bank of Italy (Article 28, paragraph
3, Consolidated Law on Finance).
Should the EC issue the equivalence decision before the
end of the transition period: UK firms operating under the
freedom to provide services to professional clients, per
se and/or eligible counterparties will be subject to the
operating (and supervisory) regime provided by MiFIR
(i.e. ESMA registration when certain conditions are met
allowing the firm to operate in the EU27). However, UK
investment firms (other than banks, authorised by the
Bank of Italy) will have to request a specific authorisation
from Consob if servicing with retail and elective
professional clients.
Should the EC fail to issue the equivalence decision: UK
firms, including those operating under the freedom to
provide services, will be required to comply with national
regulations. UK investment firms (other than banks) will
have to apply to Consob for a specific authorisation to
operate in Italy.
In the absence of the required authorisations/registrations, UK
firms will not be able to continue to provide investment services
and activities in Italy at the end of the transition period.
In this context, UK investment firms are invited to promptly
notify Consob of their interest in continuing to operate in Italy
or their intention to cease operations once the transition period
is over.
With specific reference to OTC derivative contracts may be in
place with Italian counterparties, it is recalled that - should UK
firms not be licensed to operate as third country firms by the
end of the transition period (and should the OTC derivative
contracts with Italian counterparties not be transferred to
an EU-27 entity) – the possible qualification of some of their
servicing activities as abusive provision of investment services
could have an impact on the contracts themselves and, in
particular, on their possible early termination.
Insurance sector
As anticipated, in the insurance sector, the current regime
of mutual recognition of authorisations and the supervisory
system (the so-called passport regime) is extended until the
end of the transition period.
In light of the UK’s withdrawal from the EU, IVASS has already
asked insurance companies with registered offices in the UK to:
adopt special contingency plans to ensure continuity of
service and performance of contracts concluded in Italy; and
promptly inform Italian clients of the measures taken and
their impact on existing contracts.
IVASS has followed, in collaboration with EIOPA (European
Insurance and Occupational Pensions Authority) and other
national authorities, the adoption and correct execution of the
action plans and the accuracy of information to policyholders
on the possible consequences of Brexit.
On 3 October 2018, IVASS addressed a letter to UK companies
operating in Italy, drawing their attention to the need to proceed
promptly to:
send adequate individual information on the impacts of
Brexit to its Italian policyholders and beneficiaries, along the
lines of the EIOPA Opinion;
publish similar information on its website; and
transmit appropriate instructions to its distribution networks
on the information to be provided to current and potential
policyholders.
At the end of the transition period, unless otherwise agreed, UK
entities operating in the EU and in Italy, will be subject to the
legislation relating to third country entities.
In detail, without prejudice to the outcome of the negotiation
of such agreements, insurance undertakings and insurance
intermediaries with registered offices in the UK will, at the end
of the transition period, lose the application of:
the freedom of establishment, i.e. the ability to establish a
permanent establishment in Italy without authorisation from
the Italian State; and
the freedom to provide services, i.e. the ability to conduct
insurance business in Italy without having a permanent
establishment.
Insurance contracts already concluded would remain valid.
Netherlands
In the Netherlands, before the Withdrawal Agreement was signed a transitional regime was
published for investment firms (
beleggingsondernemingen
) with their seat in the UK in case of a
no-deal Brexit. For other financial institutions no transitional regimes were proposed. Meaning that
in the event of a no-deal Brexit, they would have been treated as third-country firms under the Act
on the Financial Supervision (
Wet op het financieel toezicht
, AFS). However, when the UK and EU
entered into the Withdrawal Agreement the transitional regime for investment firms was not put
into effect. It remains to be seen whether the same proposal will be made should the EU and UK not
conclude a free trade agreement.
More generally, the so-called Dutch Brexit Act has entered into force. This Act makes it possible to
quickly take necessary legislative action by means of a general administrative order or Ministerial
decree instead of by changing the law.
Netherlands – Transitional regime for
investment firms
Whilst it is not known whether the same measures will be
made by the end of this year if the transition period ends
and there is no free trade agreement concluded between
the UK and the EU,
we briefly describe the transitional regime
for UK investment firms that was envisaged for a no-deal Brexit
last year. The amendments to the Exemption Regulation AFS
(Vrijstellingsregeling Wft, the Exemption Regulation) provided that
investment firms with their seat in the UK were exempted from
the license obligation for providing investment services and/or the
investment activity of dealing on own account in the Netherlands,
insofar provided to professional investors or eligible counterparties.
A condition was that the investment firm would need to be
supervised in the UK and it will need to notify the Netherlands
Authority for the Financial Markets (Autoriteit Financiële Markten,
the AFM). The investment firm would largely be exempted from the
prudential and ongoing code of conduct requirements as set out
in the AFS.
The exemption would apply to investment firms from the UK
acting on a cross-border basis or via a branch office in the
Netherlands, as of the moment they had received their license
and they had completed the notification.
Netherlands – Dutch Brexit Act
In addition, on 12 April 2019, the Dutch Brexit Act was published
in the Dutch Government Gazette (
Staatsblad
). The Act changed
a number of laws and regulations in the Netherlands in light of
Brexit. The Act entered into force as of the date of Brexit, being 31
January 2020. The Dutch Brexit Act is available in Dutch only.
The explanatory notes to the Dutch Brexit Act provide that the Act is
a product of an inventory that was carried out to see whether Dutch
laws needed to be amended as a result of Brexit. This inventory was
based on the fact that the withdrawal of the UK would lead to the loss
of its EU membership, irrespective of whether or not the UK could
agree a Withdrawal Agreement with the EU. For most cases, it turned
out that the existing legislative frameworks offered sufficient freedom
to be able to act quickly and adequately in both the deal and no-deal
scenarios. Therefore, the Dutch Brexit Act only contained technical
amendments to Dutch legislation that were strictly necessary to enter
into effect upon the UK leaving the EU.
In view of the complexity and the amount of legislation
possibly affected by Brexit, the Dutch legislator believes
it to be important that quick legislative action can be
taken in cases of urgent, unforeseen issues resulting from
Brexit. This is only insofar as is necessary for the proper
implementation of a Brexit-related binding EU legal act or
to avoid unacceptable consequences.
Therefore, the Dutch
Brexit Act contains a generic provision making it possible
to quickly take necessary legislative action by means of a
general administrative order or ministerial decree instead
of by changing the law.
These emergency legislative actions
will in principle have a transitional nature, meaning that
they will generally apply only temporarily and/or will be
substituted by a more structural / formal legislative action.
It is important to note that neither the Dutch Brexit Act nor
the explanatory notes thereto include (or mention) changes
or measures aimed specifically at the financial sector.
However, the aforementioned generic provision can also be
used as a basis for legislative actions that may need to be
taken in the financial sector.
Doing business in the EU after the transition period
Netherlands – Existing exemptions for
third country firms (1/3)
Investment firms dealing on own account
Third-country firms that exclusively deal on own account
in the Netherlands via an authorised person, are exempted
from the obligation to obtain a licence as an investment firm.
We understand that this exemption should be understood to
mean that a third-country investment firm that deals on own
account is allowed to be a member, participant or client of
any Dutch trading venue without the need to be licensed or
use another party which is licensed in the Netherlands. No
notification to the AFM is required in order to be able to rely
on this exemption.
Please note that there is another exemption in place for
investment firms based in Australia, Switzerland or the
United of States of America (US) that provide investment
services to eligible counterparties or professional clients, or
deal on own account on a cross-border basis or via a branch
office in the Netherlands. In case of a no-deal Brexit, this
exemption will temporarily also apply to investment firms
based in the UK. For more information on the conditions
for this exemption, please refer to the section “Transitional
regime for investment firms”.
Netherlands – Existing exemptions for
third country firms (2/3)
Clearing institutions (clearinginstellingen)
A number of clearing institutions, banks and investment firms
that are under supervision for providing clearing services in
their home state, including firms from the UK, that act on a
cross-border basis or via a branch office in the Netherlands, are
exempted from the obligation to obtain a licence as a clearing
institution, if they have submitted a notification to the Dutch
Central Bank (De Nederlandsche Bank, DNB). For investment
firms, additional requirements apply, as they will have to:
hold a licence for dealing on own account in their home
state; and
be authorized and supervised under this licence for
providing clearing services
AIFMs
Third-country firms are exempted from the obligation to
obtain a licence as an AIFM for the offering of units in an AIF
to investors in the Netherlands, or for the managing of AIFs
that are based in the Netherlands, if the following conditions
are met:
the units of the relevant AIF are offered in the Netherlands
exclusively to qualified investors (gekwalificeerde beleggers).
Qualified investors are mostly regulated firms such as
investment funds, or firms with a certain size that fulfil two
of the following conditions: balance total of EUR 20 million,
net turnover of minimal EUR 40 million, own capital of EUR
2 million;
a notification form is submitted to the AFM; and
an attestation from the regulatory authority, confirming its
ability to effectively comply with a cooperation agreement,
is also submitted to the AFM. In practice, instead of an
attestation, a hyperlink to the registration with the regulatory
authority suffices.
Netherlands – Existing exemptions for
third country firms (3/3)
There is also an alternative exemption in place for third-country
AIFMs that offer units in AIFs to investors in the Netherlands, or
that manage AIFs that are based in the Netherlands, which units
are offered to all types of investors (instead of exclusively qualified
investors). This exemption is only available for firms based in
Guernsey, Hong Kong, Jersey and the US. We have no indication
that this exemption will also apply to AIFMs from the UK following
the end of the transition period where no free trade agreement
is concluded between the UK and the EU, but they can use the
abovementioned exemption. Therefore no further details on this
exemption is provided.
Please note that (a limited number of ) regulatory conduct of
business requirements will apply to a third-country firm if it relies
on any of the exemptions mentioned above.
We are not aware of the Dutch authorities reviewing its
third country market access regime as a result of Brexit.
DNB MoU with PRA and FCA
Furthermore, in May 2019, the Dutch Central Bank
(De Nederlandsche Bank, DNB) and the Netherlands
Authority for the Financial Markets (Autoriteit Financiële
Markten, AFM) entered into a Memorandum of
Understanding (MoU) with the UK Prudential Regulation
Authority and the UK Financial Conduct Authority. This MoU
provides a basis for the four authorities to continue their
cooperation after Brexit. The MoU will enter into force once
the transition period ends.
