On 14 November 2018, the European Commission and the United Kingdom’s negotiators reached an agreement on the entirety of the Withdrawal Agreement of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (Withdrawal Agreement). They also agreed on an outline of the political declaration on the future EU-UK relationship (Outline Declaration); a more detailed declaration will be published in due course.
Overall, there will be a transitional period until the end of 2020 unless it is extended, while no specific provision is made in relation to financial services beyond that point. The Outline Declaration, however, clarifies that the UK will have access to the EU market, and vice versa, under an ‘equivalence’ regime. This means that the usual equivalence assessment process will need to be undertaken for UK firms in the EU market and the UK will have its own similar equivalence process for the EU.
The Withdrawal Agreement
The Withdrawal Agreement sets out the key terms of the UK’s withdrawal from the EU. These, broadly, deal with:
- certain common provisions, setting out some standard clauses;
- provisions on citizens’ rights, safeguarding the rights of EU citizens and their family members to live, work and study in the UK, and vice versa;
- separation issues, including provisions relating to goods placed on the market before the end of the transition, existing intellectual property rights and ongoing police and judicial cooperation in criminal matters;
- a financial statement section, ensuring that the UK and the EU will meet their respective financial obligations resulting from obligations incurred during the UK’s membership in the EU; and
- provisions on the governance structure of the Withdrawal Agreement.
The Withdrawal Agreement is also accompanied by three additional Protocols relating to Ireland/Northern Ireland, the Sovereign Base Areas in Cyprus and Gibraltar.
Importantly, the Withdrawal Agreement provides the following:
- Recognised professional qualifications will continue to be effective under the same conditions for EU nationals who are resident in the UK, and UK nationals who are resident in the EU, before the end of the transition.
- The UK will continue to apply the Rome I and Rome II Regulation, with regard to any applicable law in contractual matters and non-contractual matters that have arisen before the end of the transition period.
- EU law on data protection will apply in the UK for personal data that was processed either before the transition period or on the basis of the Withdrawal Agreement.
The Withdrawal Agreement provides for a transitional period, until 31 December 2020. During this period the UK will be treated as an EU member state and EU law will continue to apply in the UK. The aim is to ensure a smooth transition and allow for the necessary time to adapt to the new state of affairs. This means that the UK will continue being part of the EU Single Market and thus will benefit from the freedom of establishment and freedom of services. However, the UK will not be able to participate in the EU institutions and governance structures, such as the European Parliament.
Moreover, any changes to EU law during this period will automatically be applicable to the UK with direct effect. The UK will be also bound by international agreements entered into by the EU during the transitional period. This means that the UK will not be able to strike its own trade deals with third countries to grant them different terms for access in its market, for the time being.
The UK and the EU can mutually agree, by July 2020, to extend the transitional period.
The Withdrawal Agreement makes no specific provision for financial services. It does provide, however, that when the transition period comes to an end, the UK will no longer have access to EU networks, information systems and databases. This will include access to databases of the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) unless special provision is made for such access in the future arrangements post-Brexit. Moreover, ongoing administrative procedures before EU authorities will continue such as investigations begun before the end of the transition period. The EU will provide the UK with a list of ongoing activities within 1 month after the end of the transition period.
The Outline Declaration, on the other hand, sets out the envisaged UK-EU relationship post-Brexit with regards to investments and financial services, clarifying certain important aspects:
Services and investment
- The Declaration provides that the future trade agreement should cover a broad range of sectors and go ‘well beyond the Parties’ WTO commitments’.
- With regards to market access, host state rules should ensure that UK and EU service providers and investors are not treated in a discriminatory manner. It is also important to ensure that transparent, efficient and compatible, to the extent possible, regulatory approaches are in place, while preserving at the same time the principle of autonomy.
- The UK and the EU need to put in place appropriate arrangements regarding professional qualifications.
- Provision needs to be made to enable free movement of capital and payments related to transactions liberalised under the economic partnership, subject to relevant exceptions.
- The Declaration emphasises that both the UK and the EU need to ensure that financial stability, market integrity, investor protection and fair competition are preserved. However, it also clarifies that they will do so ‘while respecting the Parties’ regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest.’ It is also specified that the UK and the EU will be able to adopt or maintain any measure where necessary for prudential reasons.
- The Declaration also urges both parties to initiate equivalence assessments as soon as possible aiming to conclude these assessments before the end of June 2020.
- Lastly, the Declaration encourages ‘close and structured cooperation on regulatory and supervisory matters, grounded in the economic partnership and based on the principles of regulatory autonomy, transparency and stability, recognising this is in the Parties’ mutual interest.’