Regulated Financial Services

The right to passport services and financial products are only available to firms operating within the European Economic Area (EEA). Brexit will make the UK a “third country”. If EU and UK cannot agree on a contractual basis for mutual market access, UK-based firms, passporting into other Member States, will need to either establish a subsidiary in the EEA and take advantage of its full passporting rights or establish branches in each country where they wish to do business locally and hope to rely on grandfathering being available for these branches when the UK leaves the EU. The same applies vice versa for EEA firms currently passporting into the UK.

Although EU law allows the recognition of third countries as equivalent, the concept of equivalence cannot be seen as suitable substitute to passporting rights. Since Brexit would allow the UK to take advantage of more flexibility in regulation, it is unlikely that the UK would maintain an equivalent regulatory regime. And even if there is an equivalent regulatory environment, certain financial services would not be covered by equivalence, including services falling under CRD IV (including lending and deposits) and payment services. This means, that in particular deposit-taking as well as lending cannot be passported by a third country regardless of its recognition as equivalent.

In consequence, if there is no transitional agreement or agreement on mutual recognition, UK-based firms need to prepare for a regulatory environment in which there are no special access arrangements into the EEA.