Boris Johnson has just won the race to become Conservative Party Leader, and as such is about to become Prime Minister. Mr Johnson won primarily based on his pledge that the UK will leave the European Union on the 31st October “do or die”, referring to his willingness to take the UK out of the EU without a deal. Whilst this pledge propelled Mr Johnson to victory, it is not the only Brexit pledge from within his party, leaving the future of Brexit uncertain.
A no-deal exit from the EU will mean that the UK will be withdrawn from all regulatory regimes within the EU & EEA immediately. This will include the EEA regimes in place to allow UK firms to operate across the EEA through passporting.
Passporting is the right of firms regulated by a financial regulator in one EEA jurisdiction, to ‘passport’ their authorisation and operate in another EEA jurisdiction with minimal hurdles. This is done through the MiFID, AIFMD and UCITS directives, which will cease to apply in a no-deal exit.
Even if Mr Johnson were to secure a Brexit deal, it is unlikely to include MiFID passporting. This is because Mr Johnson has made the UK not being in the Single Market or Customs Union a red line, which would rule out EEA membership. MiFID passporting could be included in a deal but would require major concessions in areas such as immigration, which in the current climate is highly unlikely.
The loss of this right in a no-deal exit will mean that UK firms will have to set up new entities and become regulated in an EEA jurisdiction that they want to operate in and then apply to passport their rights to other jurisdictions. This is a costly and lengthy process and will present too high a barrier for smaller firms.
In the case of AIFMD and UCITS firms, there have been steps taken to minimise the disruption. These steps have included the possibility of equivalence decisions, the transitional permissions regime and the use of existing third country regimes. For MiFID firms, there is no transitional relief.
To remedy the latter, Laven has implemented a Brexit solution which will minimise the impact of losing MiFID passporting for advising and arranging in investments on firms who operate in the UK and use MiFID passports, but also for EEA firms that wish to operate in the UK after Brexit. Laven lends its MiFID expertise to a Luxembourg entity, allowing firms to continue distribution of their products across EEA alongside our local partner firm Fuchs & Associés Finance S.A.
If you would like to speak with the Brexit team please do not hesitate to get in touch via email: [email protected] or call us on +44 (0)20 7838 0010.
