UK: Brexit: Five Reasons For Financial Services To Keep Calm And Carry On

Summary and implications

In the immediate aftermath of the Brexit vote, we published a briefing on the implications of the result. This briefing focuses on the implications for financial services, a key part of the UK's economy.

We argued a few weeks back that the future regulatory landscape for UK financial services, at least as far as the detail goes, depends enormously on the nature of the broader Brexit deal that the UK manages to negotiate (touch wood) with its erstwhile EU colleagues. Although this uncertainty now exists following the result, we think even at this stage there are some things worth remembering as you plan for a currently unclear future. We have set out five of these below.

1. Financial services regulation was not invented entirely by the EU

Whilst it is clear that many aspects of the UK's financial services regulatory regime are based on European law, some of it also follows global policy agreed in the wake of the financial crisis by the G20, the Financial Stability Board and IOSCO. It is also worth remembering that some of the more controversial regulation has been driven by the UK, not the EU. Examples include the ban on inducements, ring-fencing of retail and investment banks, the bank levy and adviser charging rules. Given the influence of the UK in shaping the EU's financial services regulation, most recently via the very active Lord Hill as EU Commissioner for Financial Services, it is also conceivable that an independent UK might have implemented similar rules in certain areas even if it had not been part of the EU.

2. Bad law is better than no law

Nevertheless, the extent to which financial services in this country are regulated by EU legislation is huge. This is demonstrated by the veritable alphabet soup of regulatory regimes that are very familiar to us and our clients – AIFMD, CRD, EMIR, MAD, MiFID, PSD2, UCITS... we could go on. However, the very ubiquity of EU rules means that they are likely to remain largely in place in the near to medium term. It may even be sensible for the UK to transpose EU Regulations directly into UK law, at least during a transitional period (Regulations have direct effect and apply automatically in the UK on adoption by the EU, whereas Directives must be implemented into national law by Member States themselves). The confusion of no law is much more damaging than the certainty of unpopular law. In any case, EU regulation will continue to apply in full for a minimum of two years, until a formal exit is agreement is reached.

3. Divergence may come, but it will be gradual

Even so, the FCA has had its differences with EU regulation. It has been known to go further than European regulators at times, in some cases "gold-plating" the application of EU rules in the UK. For example, the EU's telephone recording obligations under MiFID II are to a great extent an exercise in the EU catching up to where the FCA is already. In other areas the UK regulator has been more liberal than other Member States. In the AIFMD context for example, the FCA has taken a more practical approach than other Member States when applying new rules on remuneration, granting authorisations and the defining what constitutes the "marketing" of Alternative Investment Funds.

So, whilst the UK may wish over time to implement rules that differ in places to those within the EU, there are a number of reasons why any such divergence is likely to be gradual:

  • The task of replacing multiple regimes would be huge and take a very long time, both for regulators and for firms who have invested heavily in complying with current regimes.
  • For the most part, despite some grumbling, EU financial services rules have been accepted in the UK (except perhaps in certain parts of the hedge fund and brokering industries, there is no deep feeling of resentment akin to the public outcry against the famous, egregious, fictional banana regulations).
  • The uncertainty around a wholesale re-working from a blank canvass would be unacceptable.
  • There will be a lot of pressure to negotiate as much access for UK service providers to the EU's Single Market as possible, which depends on the UK's regime passing the "equivalence test". This in practice means the UK continuing to comply with EU standards (it is worth remembering that even the US, birthplace of private equity funds, recently failed this test in the AIFMD context).

4. We can help with the "known unknowns"

Donald Rumsfeld's famous line was over-used in the period leading up to the referendum (including by us), but it is clear that there are key questions to which the financial services industry would ideally needed answers sooner rather than later. These include:

  • Passporting – will UK firms keep their various "passports" for business in the EU?
  • AIFMD – will the UK receive a "third country" passport if required, and if so when?
  • EMIR – where will clearing need to be carried out post-Brexit?
  • MiFID II – should firms continue or call off preparations?
  • UCITS – will firms need to set up a management company inside the reduced EU?

However, it would be very optimistic to expect definitive answers to these questions in the immediate future. Given the notoriously pedestrian pace of EU negotiations, and their tendency towards brinksmanship and eleventh hour deals, firms need to consider their options. One such option is whether EU authorisations should be sought sooner rather than later, regardless of the eventual Brexit terms. If access to European markets is business-critical, then such pre-emptive hedging strategies might be worth the premium. In any case, Nabarro can help you consider the options that are available and if necessary implement any contingency plans.

5. Crowdfunding is not yet regulated at EU level

The EU's Capital Markets Union is a work in progress, and certain important growth areas, notably crowdfunding, are not currently subject to any bespoke EU regulation. The UK's crowdfunding industry has grown to be the largest and most dynamic in Europe under mostly FCA oversight. Brexit may mean that the industry misses out on any move by the EU towards a cross-border framework, but this seems very distant and hypothetical anyway, given that the EU as recently as May 2016 decided that there was "no strong case for EU level policy intervention at this juncture". The impact of Brexit on UK crowdfunding is therefore likely to be confined to broader economic issues, rather than any increased regulatory uncertainty.

Finally...

We will be following all the issues for financial services firms very closely and communicating developments and our thoughts in detail over the coming weeks, months and years. In the meantime, please get in touch if you would like to discuss the regulatory challenges or opportunities that these uncertain times present for your business.

Please also remember that financial services regulation was already evolving at a rapid pace – that is one certainty that Brexit will not change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.