In light of the recent political events in the United Kingdom (“UK”) as well as the reactions by the European authorities, the UK’s withdrawal from the European Union is increasingly likely to take place on a disorderly basis. The European Commission has issued a statement on 4 September 2019 in which it reiterates its call on all stakeholders in the EU27 to prepare for a ‘no-deal’ scenario and to use the extra time until 31 October 2019 to ensure that they have taken all necessary measures to prepare for the UK’s withdrawal from the EU. The Commission further recalls that it is the responsibility of all stakeholders to prepare for all scenarios.
The Joint Committee of the European Supervisory Authorities (ESAs) have similarly launched on 12 September 2019 a report on Brexit and its potential sources for instability, in which the ESAs call for a series of actions by European and national competent authorities as well as financial institutions. The main elements discussed in the report are contingency planning measures, “low-for-long” scenarios, bank profitability, leveraged lending markets, and continued work on sustainable finance and ESG risks.
In a ‘no-deal’ scenario, the UK will become a third country without any transitional arrangements. All EU primary and secondary law will cease to apply to the UK from that moment onwards. There will be no transition period, as provided for in the Withdrawal Agreement. This will obviously cause significant disruption for citizens and businesses and would have a serious negative economic impact, which would be proportionally much greater in the United Kingdom than in the EU27 Member States.
In the field of financial services, a limited number of general EU and specific Luxembourg contingency measures will kick-in in the event of a no-deal Brexit:
- temporary and conditional equivalence decisions prolonging the access of EU firms to UK central clearing counterparties (CCPs) and UK central security depositories (CSDs), for 12 and 24 months respectively
- preservation, for 12 months following the withdrawal date, of the regulatory treatment of derivative contracts currently exempted from the clearing obligation and the bilateral margin requirements that EU law imposes, when such contracts are transferred from the UK to the EU27
- Law of 8 April 2019 on measures to be taken in relation with the financial sector in case of a withdrawal of the United Kingdom from the European Union regarding the financial sector, payment and securities settlement services, undertakings for collective investments (UCIs), alternative investment fund managers, the insurance sector as well as bank recover and resolution considerations,
- Law of 8 April 2019 on measures to be taken in relation with the financial sector in case of a withdrawal of the United Kingdom from the European Union regarding UCIs and specialised investment funds (SIFs),
- Various CSSF publications available on their public website
The ABBL further wants to draw the attention of its members processing cross-border SEPA payments to the immediate implementation recommendations by the European Payments Council aiming at a continued smooth processing of cross-border SEPA payments involving UK-based SEPA scheme participants in case of a “no-deal” Brexit scenario.
Finally, the members are encouraged to regularly check the dedicated ABBL websites (public and Membernet) on Brexit for any relevant updates. The ABBL remains obviously at the disposal of its members in case of questions.