The UK's exit from the European single
market and the loss of EU passporting rights has had a profound
impact on its financial services sector. Prime Minister, Boris
Johnson himself admitted the EU-UK Trade and Cooperation Agreement
(the "Deal") did "not go as far as we would like",
and many in the City have echoed this sentiment.
Those in the financial services industry had been closely monitoring the impact different exit scenarios could have upon their clients and transactions ever since the Brexit referendum in 2016. There has been considerable activity in the interim. In October 2020, EY estimated that £1.2tn in assets had been transferred to the EU since the result's announcement. Now, with something tangible to work with, experts have been rigorously examining the Deal's 1,246 pages to determine the industry's next steps, and whether firms need to make any changes to their existing product lines.
Firms are also assessing the extent to which Brexit presents new business opportunities, with companies now able to explore new product offerings and new markets. Chancellor, Rishi Sunak suggested the new regulatory autonomy could provide a boost for the UK's financial services sector and strengthen its position as a pre-eminent, global financial centre, pointing to a possible future of lighter touch financial regulation in order to remain competitive with its EU neighbours. A number of analysts described this post-Brexit approach as the "Big Bang 2.0", referring to the period of mass deregulation in the 1980s under former UK Prime Minister Margaret Thatcher.
Undoubtedly, retaining easy access to European markets continues to be a priority for many UK-based financial services firms as they no longer have EU passporting rights. Since the Brexit vote, most providers put in place effective contingency plans to be less reliant on the single market where possible. Those parties wishing to continue their financial activity while remaining within the EU legal regime are now exploring alternative options.
Ireland has proven to be a popular alternative for many UK-based financial services firms, and its financial services sector is well-placed to continue to thrive in the post-Brexit era.
Market participants are attracted by the fact that Ireland is the only English-speaking, common-law country remaining in the EU (Malta is a hybrid common and civil law jurisdiction) and has increasingly robust financial services infrastructure.
The Irish legal sector also has a strong global reputation, with its court system known for being efficient and pro-business. Notably, a number of UK law firms such as Pinsent Masons and DLA Piper, among others, have established operations there since 2016.
Nevertheless, as the UK-EU Trade and Cooperation Agreement stands, there are limited commitments from the EU towards the UK financial services sector. In some sectors, alternative arrangements had been agreed prior to the UK leaving the EU. For example, in respect of the UK's three central clearing counterparties: ICE Europe Limited; LCH Limited; and LME Clear, they have been recognised by the EU as eligible to continue to provide their services in the EU after 01 January 2021.
Whilst the UK and EU define their future relationship on financial services, Ireland's robust legal system and EU passporting offering means it provides a tangible alternative for the corporate trustee and agency roles for EU focused transactions.
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