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The UK Government's plans for a 'no deal Brexit' will make it far easier for EU27 financial institutions to access UK financial markets than it will be for UK institutions to access the EU. Claims that access to the City of London would be significantly impaired in the event of a no-deal Brexit are therefore unfounded.
The financial regulation team at European law firm Fieldfisher has analysed the 'temporary permissions regime' (TPR) and the 'overseas person exclusion' (OPE) in its paper 'Brexit and access to UK financial markets'.
The TPR involves a process that would need to be opted into by any EU27 firms currently operating on the basis of a passport looking to do business in the UK after Brexit. Firms will have to submit an application for full authorisation, or a notice of intention to exercise their rights under the TPR. These will have to be made before March 2019, giving them a window of less than eight months. The TPR is a transition to full authorisation in the UK – once the temporary permission period expires, firms that have relied on the TPR will have to seek full authorisation.
However, it may not be necessary for such EU27 firms to rely on the TPR, depending on the nature and scale of their activities. Such firms may look to rely on exclusions from the UK financial regulatory regime, the principal one being the Overseas Person Exclusion (OPE) which permits various activities to be carried out on a cross border basis into the UK. Crucially, the OPE will cover most broker-dealer and investment banking activity.
Combined with other exclusions, and given certain activities may not be seen as being carried out in the UK at all, many firms could find that the scope of UK authorisation they require in a 'no-deal' scenario is significantly narrower than the scope of their current passport, or is not required at all. Indeed a significant volume of business currently carried out in the UK by EU27 firms under the passport can be carried out without falling within the scope of UK authorisation.
Azad Ali, Financial Services Regulatory partner, Fieldfisher, said: "It is clear that the government is making every effort to ensure that European financial services firms can continue conducting business as usual in the UK after Brexit. The temporary licensing regimes are helpful, but nonetheless introduce additional regulatory friction and are, by nature, transitional.
"Many EU27 firms will not have to rely on the TPR in the first place, if they can instead tailor their operations to rely on one of the exclusions from UK financial regulation, such as the OPE. The relatively accommodating nature of the UK regulatory regime with regard to overseas firms goes a long way to mitigating the cliff-edge impact of a 'no-deal' for such firms."
More detail in our report 'Brexit and access to UK financial markets – An analysis of the Temporary Permissions Regime and the Overseas Persons Exclusion'.
For more information or to speak to Azad Ali, please contact Chris Bond on chris.bond@fieldfisher.com or Laura Syrett on laura.syrett@fieldfisher.com