{"id":5779,"date":"2020-03-24T17:44:50","date_gmt":"2020-03-24T17:44:50","guid":{"rendered":"https:\/\/fintech.global\/globalpaytechsummit\/?p=5779"},"modified":"2020-03-24T17:44:50","modified_gmt":"2020-03-24T17:44:50","slug":"why-brexit-will-continue-to-be-a-big-challenge-for-financial-services-firms","status":"publish","type":"post","link":"https:\/\/fintech.global\/globalpaytechsummit\/why-brexit-will-continue-to-be-a-big-challenge-for-financial-services-firms\/","title":{"rendered":"Why Brexit will continue to be a big challenge for financial services firms"},"content":{"rendered":"

Despite being more than three years in the making, the UK\u2019s divorce from the EU is still a\u00a0cause of great uncertainty for financial services firms<\/a>.<\/strong><\/p>\n

The negotiations have currently come to a stalemate as most European nations are busy dealing with the\u00a0coronavirus outbreak<\/a>. Not only has the pandemic put the negotiations on hold, but so has the fact that the EU\u2019s head of Brexit negotiations Michel Barnier has tested positive for coronavirus. While there are rumours that the transition period may be extended beyond the original December 31 2020 deadline, nothing has been confirmed.<\/p>\n

To Remonda Kirketerp-M\u00f8ller, founder and CEO of\u00a0Muinmos<\/a>, the RegTech company, this uncertainty means that Brexit has become one the biggest challenges facing the sector.<\/p>\n

\u201cEven without [Brexit], it has become obvious over the years that the regulatory terminology applied by the United Kingdom is quite different for a number of the services, activities and instruments when cross-referenced with the\u00a0Markets in Financial instruments Directive<\/a>, better known as [MiFID II],\u201d she tells RegTech Analyst.<\/p>\n

\u201cThis has resulted in confusion amongst the EU member states, especially when the financial services authorities of these member states\u00a0passported\u00a0<\/a>their financial investment firms\u2019 services into the United Kingdom and vice-versa.\u201d<\/p>\n

Kirketerp-M\u00f8ller adds that Brexit may make the legislations concerning financial investment firms and financial services authorities as well as \u201cUK citizens and residents wishing to become clients of EU financial investment firms and vice versa\u201d even more complex.<\/p>\n

This, she argues, is due to the fact that Britain is likely to become classified as a third country by the EU. This would mean that they would not be able to rely on things such as the EU nations\u2019 passporting rights, unless it is negotiated in the final deal.<\/p>\n

Looking closer at what being classified as a third country would mean, Kirketerp-M\u00f8ller explains that financial firms would have at least three routes to ensure they still have access to the European market. They are third country equivalence regimes, third country exemptions which may be available for UK firms in certain EU countries, or to relocate.<\/p>\n

However, she explains that neither of these three alternatives are without challenges or downsides.<\/p>\n

\u201cOn third country equivalence regimes, there is no guarantee that the EU authorities will actually make any equivalence determinations or even have the political incentive to do so in favour of the UK by the end of the transitional period, and even if they did, it will never be as comprehensive as the existing passporting rights which all EU firms are familiar with and use,\u201d Kirketerp-M\u00f8ller says.<\/p>\n

\u201cIn fact, to date the European Commission has not made equivalence determinations under MiFID II in favour of any country so why would they do it for the UK? Note also equivalence is not an automatic right.\u201d<\/p>\n

While the UK has implemented a lot of EU laws already, the process for equivalence is not straightforward. \u201c[The) process is likely to be lengthy and, given the determination of equivalence is ultimately made by the European Commission, subject to political considerations,\u201d Kirketerp-M\u00f8ller warns. \u201cIt is also unclear whether the UK in the long term would wish to align its regulatory regime as closely with that of the EU as the concept of equivalence would require, given its future lack of involvement in the EU legislative process.<\/p>\n

\u201cAlso, the concept of equivalence in the context of access to markets is currently only available as an option in two sets of legislation, MiFID II and the AIFMD, and therefore would not be an industry-wide solution.\u201d<\/p>\n

Moving on to third country exemptions, she explains that these largely depend on each member state. \u201cThis means that where a financial investment firm wishes to provide its services and activities from the UK into the EU will need to be considered on a case-by-case basis, to determine if the relevant service and activity requires a license or some sort of other permission by the relevant regulatory authority of that specific member state,\u201d Kirketerp-M\u00f8ller says.<\/p>\n

\u201cTo some extent, there are few countries in the EU \u2013 including Germany, Netherlands, and Ireland \u2013 where they have some exemptions which permit third-country firms to perform certain licensable services and activities without a local license provided the terms of the exemptions are fully fulfilled.\u201d<\/p>\n

Several financial services firms and FinTech companies have opted for the third options: relocation. UK challenger bank\u00a0Revolut is reportedly relocating to Lithuania<\/a>\u00a0to ensure it has access to the European market. Others, like\u00a0Starling Bank<\/a>, are\u00a0opening offices in Ireland<\/a>.<\/p>\n

However, Kirketerp-M\u00f8ller believes this options is not clearcut either. \u201cHow will this be assessed by the National Competent Authorities (NCA) and how do they verify the objective of the relocation for the financial institution and avoid letter-box entities across\u00a0the EU?\u201d\u00a0 she wonders. \u201cNCAs need to ensure that substance requirements are met, that sound governance of the EU entities, and each NCA need to be in position to effectively supervise and enforce EU law.\u201d<\/p>\n

The Muinmos founder believes the European Securities and Markets Authority (ESMA) will need play a big part in providing guidance in how relocation would work. Yet, she adds that the regulator being able to do so might still be some time away. \u201cAt this point in time ESMA\u2019s register is not up-to-date and this will create a lot of issues in the coming period, as reliance on the data currently available on financial institutions across the EU is not an option due to the lack of consistency and discrepancy,\u201d Kirketerp-M\u00f8ller continues.<\/p>\n

Copyright\u00a0\u00a9 2020 RegTech Analyst<\/p>\n","protected":false},"excerpt":{"rendered":"

Despite being more than three years in the making, the UK\u2019s divorce from the EU is still a\u00a0cause of great uncertainty for financial services firms. The negotiations have currently come to a stalemate as most European nations are busy dealing with the\u00a0coronavirus outbreak. Not only has the pandemic put the negotiations on hold, but so… <\/p>\n

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