The impact of Brexit on how the UK Banking and Financial Services industries will be able to function in the EU following Brexit is one of the key elements of the Government's negotiations.
It is currently unclear what the full impact of Brexit will be on this sector. There are a number of likely consequences but these will depend on the negotiations.
Unless the UK retained EEA membership, institutions which access EU markets from the UK may no longer have access through the passporting schemes, and any deals as to a continuation of this may take considerable time to negotiate. UK banks may have to obtain new licences in multiple EU jurisdictions.
Conversely, EU institutions who passport-in to the UK would also be affected and may need to apply for separate licences: a new regulatory regime may be required. Banking structural reform legislation and the Banking Recovery and Resolution Directive adds further complexity.
As a more general point, much EU derived legislation would need to be maintained by the UK to allow the Banking and Financial Services industries to be able to function. Any reductions in the UK in regulation may jeopardise access to EU markets.
At a transactional level, existing loan and trading documents will need review which could result in wide use of amendment agreements and additional industry standardisation. We would expect ISDA and the LMA to be involved in this.
- Institutions will have key questions to ask and answer to understand which of their business activities depend on the EU passporting scheme to access EU markets and how these activities can continue.
- The approach taken will very much depend on what the negotiations in the coming months and years can achieve. As an example, if passporting schemes cannot be maintained, then it may be that banks currently relying on the EU passporting regime set up separately authorised entities in Europe in order to continue to do business within the EU, which will necessitate staff transfers.
- This will involve considerable time and expense to implement with there being numerous technical and practical issues, such as employment laws and IT infrastructure.
- Deals will need to be struck as to infrastructure arrangements such as payment services and clearing services.
- Loan agreements and derivatives trading documents may require new clauses to reflect changes in legislation and to reflect the practicalities for changes in infrastructure.