Brexit is the term used to refer to the exit of Britain from the European Union. The UK electorate voted to leave the EU in a referendum held in June 2016. The UK government subsequently triggered Article 50 of the Treaty on the European Union on 29th March 2017, which means that the UK was due to leave the EU two years from that date, on 29th March 2019. This has subsequently been extended to 31st October and now to 31st January 2020.

Negotiations are ongoing with regard to the terms of the withdrawal, including a transition period. Political declarations and agreement on terms were expected by October 2019. However this is now on hold and a UK general election will take place on 12th December. UK and European parliaments are each due to vote on the final outcome by the end of the current extension. An implementation phase lasting until the end of 2020 has been tentatively agreed, implying the new UK-EU framework will apply from 1st January 2021. However, all Brexit negotiations follow the principle “nothing is agreed until everything is agreed”. Thus, a risk remains that the UK will leave the EU without any agreement or transition period.

The UK’s withdrawal from the EU has wide-reaching implications, including for financial markets. One key aspect for UK investment firms providing financial services into the EU, and vice versa, is that they can do so today without adhering to additional local regulation under so-called ‘passporting’ arrangements. When the UK leaves the EU these arrangements will no longer exist in their current form. Consequently, investment firms are planning for various potential outcomes, on a contingency basis, given the lack of legal certainty expected until late in the process. This includes applying, where required, for local authorisation with potential accompanying implications for operational logistics in advance of exit day.

The UK government has committed to legislate for a temporary permissions regime to enable passporting EU firms to continue to manage new and existing business commitments in the UK during an implementation phase. As yet this is not reciprocated by EU regulators.

Other significant aspects of Brexit include hurdles to overcome on management of cross border personal data transfers and data protection considerations; continuity of derivative contracts and choice of jurisdiction; access to authorised/equivalent market infrastructure, e.g. CCPs and trading venues; impact on client and counterparty relationships; product impact; and, not least, safeguarding of citizens’ rights.

Last updated 31st October 2019

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