Financial Services Generally – Top 5 Issues (Jan 2021)

  1. Loss of passporting rights and access to customers for regulated firms - The EU-UK Trade and Cooperation Agreement of December 2020 (the Agreement) does not provide the UK with access to the Single Market. Therefore, as the transition period ended on 31 December 2020, the UK is no longer a member of the Single Market. As a result, regulated firms no longer hold passporting rights to provide regulated financial services either into the EU/EEA from the UK or into the UK from the EU/EEA. William Fry has acted/is acting for many UK regulated financial service providers who have chosen Ireland as the location for their EU/EEA-customer facing regulated entity in their Brexit contingency planning.
  2. Equivalence regimes - additional regulatory risk/complexity, costs and uncertainty - The Agreement does not include any elements relating to equivalence regimes for financial services. Equivalence regimes may be established between the EU and the UK in specific segments of the regulated financial services sector post-Brexit where both the EU and the UK deem the other jurisdiction to operate broadly similar regulatory and supervisory standards to facilitate firms carrying on business in both jurisdictions. The European Commission is currently assessing the UK's response to the Commission's equivalence questionnaires in 28 areas of the regulated financial services sector. However, equivalence regimes are never a reliable substitute for passporting rights because:

    •  certain key EU financial regimes (e.g. CRD re core banking services and PSD2 re payment services) do not contemplate equivalence regimes; 

      equivalence decisions are always at risk of being rescinded (e.g. if the regulatory and supervisory standards in a country diverge from EU regulatory and supervisory standards after an equivalence decision is made); and

      equivalence decisions are unilateral and may be subject to conditions or limitations which differ between jurisdictions introducing regulatory complexity and risk and higher compliance costs for firms.
  3. The Agreement does not include financial services - The Agreement deals with financial services in a very limited manner and excludes financial services from the requirement to review trade in services relations in the future and from the most-favoured nation clause in terms of any future trade deal. The Agreement is accompanied by a joint declaration stating that both the EU and the UK aim to agree a Memorandum of Understanding by March 2021 establishing a framework of regulatory cooperation on financial services, pertaining specifically to equivalence. For now, the provision of financial services between the EU and the UK is subject to the WTO's General Agreement on Trade in Services (GATS) trade rules in financial services. The GATS rules applicable to financial services are not comprehensive and the practical effect for firms operating in sectors that lack comprehensive equivalence regimes, will be similar to the effects that would have been experienced by firms under a no-deal Brexit.
  4. Regulatory divergence - The Agreement commits the EU and the UK to ensuring that internationally agreed standards in the financial services sector are implemented and applied in their territories. However there remains a significant risk of divergence in regulatory standards between the EU and the UK over time post-Brexit resulting in complexity, cost, regulatory risk and potentially regulatory arbitrage. For example, as the UK is no longer subject to restrictions on remuneration and bonuses under EU regulations applicable to banks and certain other regulated financial service providers under CRD IV it could adopt a more flexible approach to remuneration in these sectors, this will have knock-on effects on regulated financial service providers who remain subject to restrictions on remuneration across the EU.
  5. Staffing and outsourcing - Where a regulated firm which has previously benefitted from a passport to provide services across the EU/EEA including the UK, is compelled to establish separate regulated entities in the EU/EEA and in the UK in order to guarantee uninterrupted access to EU/EEA and UK customers post-Brexit, this is likely to result in higher overall staffing numbers/costs. However, we work closely with our Brexit-related clients who have established an Irish regulated entity on outsourcing arrangements which leverage centres of excellence in other jurisdictions (e.g. the UK) whilst meeting regulatory requirements relating to outsourcing, including ensuring appropriate oversight of the outsourced service by the Irish regulated entity.


 Shane_Kelleher_Brexit    Louise McNabola

Shane Kelleher

Email Shane
+353 1 639 5148


Louise McNabola

Email Louise
+353 1 639 5196