Tag: passporting

Germany is paving the way for an informal transition period for the financial market in case of hard Brexit

Published on by Dr. Verena Ritter-Döring

On 20 November 2018, the Federal Ministry of Finance of Germany published a Draft Act on Tax-Related Provisions concerning the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union.

The Draft Act proposes amendments to the German Banking Act (Kreditwesengesetz) and the Insurance Supervision Act (Versicherungsaufsichtsgesetz) and aims to avoid any harm to the functioning or stability of financial markets in case of a hard Brexit, i.e., the withdrawal of the UK from the EU by the end of March 2019 without an agreement.

BaFin will be allowed to grant a transition period until the end of 2020 for passporting financial services into Germany

The proposed amendment to the KWG will allow the German Federal Financial Supervisory Authority (BaFin) to permit firms based in the UK, which have been providing cross-border banking or financial services based on a European passport before Brexit, to continue to operate financial transactions in Germany until the end of 2020 at the latest. The proposal reads:

In the event that the United Kingdom of Great Britain and Northern Ireland withdraws from the European Union at midnight on 29 March 2019 without having concluded an agreement on withdrawal from the European Union […] the Supervisory Authority may determine, in order to prevent disadvantages for the capacity of financial markets to function or for their stability, that the [passporting] provisions […] are to be applied accordingly, fully or partially, for a period of up to 21 months following the time of withdrawal, to companies based in the United Kingdom of Great Britain and Northern Ireland that on 29 March 2019 conduct banking business or provide financial services in Germany through a branch in Germany or by providing cross-border services [under the passporting regime]. [This] only applies to financial transactions that are completed after 29 March 2019 insofar as these transactions are closely connected to transactions that existed at the time of withdrawal.

As already mentioned here the FCA has been planning to take similar precautions for a hard Brexit. Now Germany is following.

The Draft Act, which needs to go through parliament before entering into force, authorises BaFin to extend the current passporting regime at its own discretion. BaFin may adopt a generally applicable rule for all institutions concerned or restrict it to individual supervisory areas that are highly affected. The transition period can also be shortened by BaFin. In addition, BaFin may attach conditions to its permission regime and abolish its measures at any time.

According to the currently proposed wording of the Draft Act, the transition period only applies to financial transactions concluded before Brexit. New financial transactions are only included if they are closely related to existing ones.

During the transition period, the companies concerned must prepare themselves to either apply for a respective license in Germany in order to to submit their German business to the supervisory regime for third countries, or to bring their German business to an end.

Transition period also proposed for the insurance sector

The Draft Act authorises BaFin to adopt a similar transition period for insurance undertakings in order to avoid disadvantages for policyholders and beneficiaries. This will enable insurance companies based in the UK to either transfer or terminate existing contracts within a reasonable timeframe, or meet the necessary prudential requirements for an orderly run-off of such contracts, where this is not possible.

Draft Act subject to European law

In case the EU comes up with a similar and uniform transition rule to protect the financial markets from any chaotic disruption due to Brexit, the EU rule will prevail.

How to Handle Brexit as a Fund Manager

Published on by Dr. Verena Ritter-Döring

By Dr. Verena Ritter-Doering of Curtis, Mallet-Prevost, Colt and Mosle LLP and Uwe Lill of GFD FINANZKOMMUNIKATION

The good old days seem to be over. Once Brexit gets real, the current passporting rules will no longer be available and new rules will apply for UK fund managers with EU clients. With or without equivalence, the UK will become a third country from an EU perspective, which raises three key questions that you will need to answer in order to chart the path forward: 1. Where is your fund located? 2. Where is your fund manager located? And 3. Where are you undertaking sales activities to address your EU clients?

To put it simply, there are seven different ways to serve your existing EU clients after Brexit, or to build new relationships with EU clients. We will show you in this Brexit map which route you will need to take to remain successful. In addition to considering the legal setup , it will be equally important to evaluate the way you communicate if you want to grow your EU customer base. For example, you must consider what should be taken into account when informing media in the unique German-speaking market.

For background information and details on this ongoing process (which may change on a daily basis!), please do not hesitate to contact us. We are very happy to share our expert knowledge with you.

Please click on this link to view the Brexit Tube Map for Fund Managers

FCA re-confirms temporary permission regime for inbound passporting EEA firms in case of a hard Brexit – the EU stays strict for now

Published on by Dr. Verena Ritter-Döring

Brexit will have an impact on the European and the UK financial market. Cross-border services will still be possible but the legal set-up will change and will get more complicated than the current passporting regime. Anyone who provides banking business or financial services in Germany without the appropriate license is committing a criminal offence. If charged, the person committing the criminal offence can become subject to a prison sentence (up to 5 years in case of intention and up to 3 years in case of negligence) or a monetary fine.

Outbound from the UK

If there is no implementation period when the UK withdraws from the EU, the UK will become a ‘third-country’ in relation to the EU and the current passporting regime will no longer cover the provision of financial services, payment services or the management and distribution of funds on a cross-border basis between the UK and continental Europe. Any UK person then providing any such business in Germany without the appropriate license, i.e., without a licensed set-up in Europe, will commit a criminal offence on a personal level.

The current political will in Europe does – at least at this stage – not cater for any easing of the strict criminal regime once the passporting rights of UK firms end due to Brexit.

Inbound to the UK

The FCA (backed by the UK Government) on the other hand just confirmed on October 10, 2018 that they are willing to protect the UK market by offering a transition period in case of a hard Brexit without a transition period. This will allow inbound EEA firms to continue operating in the UK within the scope of their current permissions for a limited period after the exit day, while seeking full UK authorisation. It will also allow funds with a passport to continue temporarily marketing in the UK while seeking UK recognition to continue to market in the UK.

The FCA expects the temporary permissions regime to come into force when the UK leaves the EU on March 29, 2019 and expects the regime to be in place for a maximum of three years, within which time, firms and funds will be required to obtain authorisation or recognition in the UK.

The FCA is currently consulting details of the rules they propose should apply to firms and funds during the temporary permissions regime.

What to do?

Firms will need to notify the FCA that they wish to use the temporary permissions regime.  This will be an online process and the FCA expects to open the notification window in early January 2019.  The notification window will close prior to exit day. Once the notification window has closed, firms that have not submitted a notification will not be able to use the temporary permissions regime. The FCA will then allocate firms a period (‘landing slot’) within which they will need to submit their application for UK authorisation.  After exit day, the FCA will confirm firms’ landing slots so they can start to prepare their applications. The first landing slot will be from October to December 2019 and the last will be from January to March 2021.

The regime will work in a similar way for EEA investment funds with fund managers notifying the FCA of the funds they want to continue to market in the UK.  As with firms, the FCA expects to start accepting notifications in early January 2019 and the notification window will close prior to exit day. Once the notification window has closed, fund managers that have not submitted a notification for a fund will be unable to use the temporary permissions regime for this fund and will not be able to continue marketing the fund in the UK.

It needs to be seen if the EU will align its supervisory authorities to a similar practice to ease disruption of the financial markets, should no deal be reached, and the UK will leave the EU on March 29, 2019.