It’s been a busy few weeks for Laven’s Brexit team in the aftermath of Brexit Day (31 January 2020). Whilst much of what will happen after the implementation period still remains unclear at this stage, one thing now highly likely is that we are heading towards a hard Brexit and the exit from the EU’s Single Market. If the proverbial “clean break” occurs, the UK will not have to agree to the free movement of EU nationals and will not be able to passport financial services through the European Economic Area (EEA). As we are focused on preventing any interruption to business as usual for our clients, we now we see this as a fact to adapt to.
Given the current political climate, the UK becoming a “third country” seems the most likely scenario. Thus, any UK-based permissions for distribution will no longer permit activities inside the EU and vice versa. As the FCA itself points out: ‘firms should not expect current passporting arrangements to continue after the transition period ends’. This affects not only the UK but many of our US-based clients using some form of EU regulatory cover to passport into the EU who may now have to review how they operate and incur new costs to make this work. We suggest that regulated firms undertaking activity between the UK and EU should focus some energy on how the loss of passporting may affect their business and their clients prior to 1 January 2021, the first day after the implementation period.
Brexit causing troubled waters
Why do we believe that our clients will lose the financial services passport? For a start, even as the UK government argues its position, that the Canadian deal has no passport, Mr Barnier (chief EU negotiator) has always pointed out that a financial passport was incompatible with Brexit: you cannot be in and out. While the idea of “equivalence” is desired by many in the City of London and the wider financial services sector, the likelihood of this occurring in the short term seems low.
Laven CEO Jerome Lussan recently travelled with our EU specialist Manon Anglade, to meet both the French (AMF) and the Luxembourg (CSSF) regulators to make sure Laven keeps a firm presence on the continent as we seek to help clients from both these locations. It is clear from the continent that following Brexit business is moving and permissions are being expanded which has helped other EU financial centres like Amsterdam, Paris and Luxembourg. From the point of view of the moving businesses, this is not necessarily what they wished for with clearing being an issue for some, but this is the reality.
If that was not enough consider this little-reported event in the UK that made its way to the front of the French press, immediately following Brexit Guernsey happened to introduce fishing permits for foreign vessels as of 31 January but allegedly failed to inform the French, notably the close local Normandy community. This lead to immediate tensions between Guernsey and France occuring after the West European agreement, the London Fisheries Convention, ceased to apply on Brexit Day. There are some technicalities but the French National Assembly criticised Guernsey’s “hasty and disrespectful” decision to “close fishing zones for French boats”. We do not see how the EU with the upper hand on financial services will not try to serve that one back.
Laven Prepared for Hard Brexit
To help solve the Brexit passporting issue and maintain EU-UK access, Laven has set up a new company in Luxembourg called Lumen Distribution SARL (“Lumen”) to provide EU-wide advisory services helping fund managers promote their products. Working with Lumen, which has its own staff on the ground in Luxembourg being supported by Laven’s experienced compliance team in London, UK based firms will be able to continue EEA activities as long as they follow the substance requirements.
The reverse is also true and Laven offers tied agencies / appointed representatives solutions for firms wishing to now operate from the UK which will no longer be able to rely on an EU passported branch.
If you would like to speak with the Brexit team about any of the services outlined above, please do not hesitate to get in touch via:
- Contact Form
- Email: [email protected]
- Phone: +44 (0)20 7838 0010
