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What could no-deal Brexit mean for the UK financial services industry? - expert comment

Dr Kokkinis comments:

"A no-deal Brexit will have extensive implications for the UK economy. The financial services industry currently benefits from passporting rights granted under several pieces of EU legislation which allow them to offer their services to customers in the rest of the EU without obtaining separate licensing and without having to demonstrate compliance with host state regulatory rules.

"A no-deal Brexit would mean that UK financial services firms will be treated by EU member states in the same way as firms from third countries, such as the US. That would mean that – in most cases – they would need to set up subsidiary companies in each EU member state where they intend to operate and comply fully with local regulatory rules.

"However, there will be the possibility of an equivalence determination being made by the Commission confirming that the UK regulatory framework is equivalent with the EU’s framework for the purposes of particular pieces of EU financial legislation. For instance, a determination of equivalence under articles 39 – 43 MiFID and 46 – 49 MiFIR would enable UK firms (even in a no-deal Brexit scenario) to offer wholesale financial services to professional clients in other EU member states, without the need to set up a subsidiary or even a branch and without having to comply with local rules.

"Equivalence is granted unilaterally by the Commission and could be revoked at any time. This would create some uncertainty for UK financial firms which may decide to move some operations to other EU member states. This could lead to a reduction in the number of financial services jobs in the UK, and in the contribution of the sector to UK GDP.

"If there were an agreement with the EU, in the lines suggested by the Government’s Chequers Paper, this would establish an institutional framework governing the determination of equivalence which could possibly provide UK financial firms with a higher level of legal security. That being said, the most immediate ramifications of a no-deal Brexit would be in the area of trade in goods, as tariffs and customs controls would apply, which would disrupt cross-border supply chains and directly threaten the viability of major manufacturing activity in the UK.’’

Dr. Andreas Kokkinis | Assistant Professor

Director of LLM in International Corporate Governance and Financial Regulation

 

 

 

 

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