Brexit update

Since the UK's withdrawal from the EU on 31 January 2020, in accordance with the Withdrawal Agreement concluded between the UK and the EU to ensure an orderly departure and legal certainty, EU law continues to apply to and in the UK in important areas during the transition period ending 31 December 2020. The UK having refused an extension as allowed by the Withdrawal Agreement, the transition period will necessarily end on 31 December 2020.

In July 2020, the European Commission issued a Communication on readiness at the end of the transition period between the EU and the UK (see the link here) as well as a Brexit Readiness Checklist (see link here). Indeed, even if the EU and the UK conclude a partnership by the end of 2020 covering all areas agreed in the Political Declaration relating to their future relationship, the UK’s withdrawal from the EU acquis, the internal market and the Customs Union will, at the end of the transition period, inevitably create new barriers to trade.

Regarding financial services, it results from the Communication that, contrary to what was foreseen in the Political Declaration, the Commission could not conclude its equivalence assessments by the end of June 2020. At this stage, it seems highly unlikely that the Commission will adopt equivalence decisions which would allow UK entities privileged access rights for the provision of financial services in the EU Internal Market in those areas where this is envisaged by EU financial regulation.

With regard to investment services, the Commission clarifies in the Communication that it will not adopt an equivalence decision in the short or medium term. However, as far as derivatives central clearing counterparties ("CCPs") are concerned, the Commission adopted Implementing Decision 2020/1308 determining, for a limited period, that the UK regulatory framework applicable to CCPs is equivalent to the requirements set out in Regulation (EU) 648/2012 (EMIR). Since this decision expires on 30 June 2022, EU clearing members thereby get an additional 18 months to reduce their exposure to the UK market infrastructures and develop their capacity to clear relevant trades.

As regards market surveillance, investment services and asset management activities, the European Securities and Markets Authority ("ESMA") confirmed in a publication of 17 July 2020 that the "no-deal Brexit" Memoranda of Understanding ("MoUs") on cooperation and information exchange concluded with the UK’s Financial Conduct Authority ("FCA") on 1 February 2019 (see link here) remain relevant and will come into effect at the end of the transition period. In particular, a multilateral MoU between EU/EEA securities regulators and the FCA will allow fund manager outsourcing and delegation to continue to be carried out by UK-based entities on behalf of counterparties based in the EEA.

A helpful briefing published by the European Parliament on 8 October 2020 gives a global overview of the repercussions of the UK’s withdrawal from the EU on financial services and recalls the guidance issued by EU supervisory and resolution authorities in this respect.

At a general level, negotiations on the future EU-UK partnership are ongoing. The most recent EU statements confirm that, although significant progress has been made, differences in certain key areas must still be overcome in order to allow for an agreement on the future relationship with the UK in due time.