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Dentons Ranked No. 1 in Midwest Real Estate News "Best of the Best 2018"
For the fifth consecutive year, Dentons' Real Estate practice has been ranked No. 1 on the "Best of the Best" list by Midwest Real Estate News.
With all the changes and announcements in 2018, our Eurozone Hub has collated the following supervisory outlook for 2019 as a non-exhaustive “Playbook” for Banking Union Supervised Institutions and other regulated market participants already based in or otherwise relocating to the EU and/or the Eurozone.
Canada Federal Budget 2019
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US Policy Scan 2019
In Policy Scan 2019, Dentons' US Public Policy team's annual analysis of the legislative and political landscape, we take a close look at the issues, questions and conflicts that will dominate the dialogue on Capitol Hill and in the White House over the coming year.
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The Legal 500 EMEA 2019 recognizes over 130 Dentons lawyers
The 2019 edition of The Legal 500 Europe, Middle East and Africa has recognized 133 Dentons lawyers, of which 89 have been included in the elite “Leading Lawyers” list, while 44 are listed as “Next Generation Lawyers”.
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Dentons ranks across 68 tables securing 109 individual and 43 practice rankings in Chambers USA
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A revised round-up of major European developments around the EU-27
On February 28, 2019, our Eurozone Hub published a Client Alert highlighting that, with the EU continuing to play its own Brexit “emergency” legislative cards close to its chest, various EU-27 Member States had begun stepping up national efforts. Some of these efforts have included publication of principles and/or concrete draft proposals for “National Emergency Brexit Legislation” (NEBLs) which provide temporary emergency powers with narrowly defined fields of application.
This revised Client Alert on developments in key EU-27 jurisdictions reflects that, even if the original March 29, 2019 exit date is moved to the earlier of either April 12, 2019 or May 22, 2019 (each an Exit Date), the revised date itself dependent on whether the EU-UK Withdrawal Agreement is ratified by the UK’s House of Commons or not, the fact that individual states have begun to prepare unilateral and often uncoordinated measures could actually lead to more confusion in the interim until/unless the EU Commission acts and does so swiftly.
With German legislative policymakers being first out the door in advancing two NEBL instruments through its parliamentary process, other Member States, notably France, Spain, Italy and the Netherlands have been quick to advance their own efforts. Additionally, Ireland has proposed its own “Withdrawal of the United Kingdom from the European Union (Consequential Provisions) Bill 20191
into the Irish legislative process.2
These NEBL instruments remain important even where the UK has taken to renewed voting on very different potential Brexit outcomes.
This Client Alert looks at the impact on financial services and market participants from the various stages of developments on March 27, 2019, the likely outlook ahead, common themes amongst the NEBLs from the relevant Member States and indicates where gaps exist. Over the longer term, the NEBLs could however pose a set-back to EU efforts. This includes NEBLs being a barrier to aims of both completing the Banking Union and Capital Markets Union, so EU-level action could also occur to put an end to temporary measures. Such EU-level action is potentially necessary to assist, in particular affected firms, market operators and market participants to transition fully to the new “new normal” of their post-Brexit operations regardless of whether they are in the Eurozone, the EU and/or European Economic Area in a more harmonized fashion than the NEBLs currently aim to provide for.
National Member States’ actions have focused on similar measures. These include:
It should be noted that in some jurisdictions the national TPRs could run conceptually at a different (longer or shorter) period than the December 31, 2020 longstop date that is set in Art. 126 of the EU-UK Withdrawal Agreement (unless that EU level transition period itself is extended to the end of 2022 at the latest). The individual NEBLs are all originally drafted as entering into force on or around the original Exit Date (March 29, 2019) as opposed to any of the later/revised Exit Dates.
The national TPRs are generally aimed at giving UK firms time to amend their operations to comply fully with the new reality of being what the EU considers a third-country firm. They thus aim to act as a cushion for any negative impact for the EU-27 as opposed to providing a safe-harbor for the otherwise hard-landing that UK firms ought to have prepared for. As a result, they are expected to provide less market access than the EU passporting regime currently in place ahead of Brexit. In contrast to the UK, EU-27 NEBLs that incorporate the concept of a TPR do not generally permit the firm wishing to benefit from the TPR to make an application, rather a TPR is granted to the whole market or specific firms at the initiative of the relevant supervisor.
Equally, in some jurisdictions the NEBLs purport to grant decision-making authority to nationally competent authorities (NCAs). This however is an issue given that in a number of instances the ultimate decision-makers are located at EU-level. This goes against much of the hierarchy that is present in EU-level existing legislation and/or the breadth of Supervisory Principles on Relocations (SPoRs)3
published steadily by the European Central Bank (ECB) in its Single Supervisory Mechanism (SSM) lead in the Eurozone’s Banking Union or that of the European Supervisory Authorities (ESAs). This presents a possibility of inter-institutional conflict and could lead to confusion.
While this is a frustrating reality, and one that is not new, market participants will need to remain watchful and retain counsel to help navigate the various measures and chart an optimal course on compliance, including if the EU passes its own legislative measures that reduces this fragmentation and/or plugs gaps. These considerations remain important even in the event that the EU and the UK do manage to achieve consensus on the existing Withdrawal Agreement and an EU-wide transition period comes into effect—during which time EU and UK policymakers have pledged to progress a permanent arrangement on the future relationship of financial services.
On Thursday, February 21, 2019, the German parliament, the Bundestag, and on March 15, 2019 the Bundesrat, voted to adopt two bills that provide additional certainty in the event of a No-Deal Brexit as well as a Hard-Brexit.4
For financial services, the most recent set of national measures are contained in the (confusingly named) law “on tax and other provisions to accompany the withdrawal of the UK from the European Union” (Brexit-Steuerbegleitgesetz i.e. the German Brexit Tax Accompanying Act - or the Brexit-StBG) that makes amendments to 14+ laws and ordinances and which was published in the Federal Gazette on March 28, 2019.5
The Brexit-StBG enters into force on March 29, 2019 regardless of the UK’s Exit Date potentially having shifted (but that fact possibly not being, at the time of writing, reflected in primary UK legislation).
As the name suggests, the law’s primary focus remains on creating greater certainty on how the applicable German tax treatment to financial services would apply. It also has a range of very welcome measures that aim to provide certainty and the concept of a unilateral TPR that could run to a maximum 21 months from the Exit Date to allow for continuity and transition of services for banking and financial services as well as the running-off of legacy insurance services during this German TPR. The German Federal Government plans to review the efficacy of the Brexit- StBG 12 months after its entry into force on March 29, 2019.
The German parliament has also voted in favor of a draft law on transitional arrangements in the areas of labor, education, health, social affairs and nationality introduced by the Federal Government following the withdrawal of the UK from the European Union (Übergangsregelungen in den Bereichen Arbeit, Bildung, Gesundheit, Soziales und Staatsangehörigkeit nach dem Austritt des Vereinigten Königreichs Großbritannien und Nordirland aus der Europäischen Union) (the Brexit-UG).
The Brexit-StBG recitals make it clear that the withdrawal of the UK from the EU will have a variety of effects on companies in the financial sector and their business activities, including rights of market access (passporting) from the UK into the EU and thus Germany. In order to safeguard the functioning and stability of the financial markets, the law therefore provides, inter alia, for the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – (BaFin)) to be given the option to allow certain companies from the UK to continue to use the European passport temporarily for a maximum of 21 months from the Exit Date and thus make use of pre-Exit Date passporting permissions.
The BaFin is required to adopt a proportionate risk-based approach to how it uses that TPR power, with whom and for how long – i.e., not all sectors or financial market participants may be able to get the same treatment under the TPR regime (i.e. not all may have the benefit of Germany’s up to 21 month period and shorter-term arrangements might be considered), and for some the period may be subject to a number of rolling extensions. That being said, granting these powers to BaFin, notably in respect of the Banking Union, puts it on a potential collision course with that of the ECB-SSM.
In the derivatives area, the law notes that Brexit could affect a large number of contracts with very large business volumes. The draft Brexit-StBG considers this issue quite poignantly by stating: “If all the UK financial firms in question were obliged, without exception, to settle their cross-border domestic contractual relations immediately after Brexit, this could in many cases foresee adverse effects not only for those firms but also for their domestic counterparts.” The BaFin has separately published updated guidance, in English, on March 15, 20196
on OTC derivatives, trading venues and clearing.
The Brexit-StBG also clarifies that UK payment and electronic money institutions may continue to operate for a transitional period (again unclear whether general or firm-specific TPR) as well as that:
Equally, in order to safeguard the interests of policyholders and beneficiaries under existing insurance contracts, BaFin may authorize UK insurance undertakings concerned to continue their activities in Germany for the 21-month Brexit-StBG TPR period. This aims to allow UK insurers to run-off their German book and terminate contracts with German counterparties or transfer them to a suitably licensed entity within the EU-27/EEA with relevant regulatory permissions into Germany. This German insurance focused TPR, which may also have firm specific conditions attached to it, will only be possible for insurance exposures/obligations that were concluded before the Exit Date and not new business.
It remains to be seen whether the European Insurance and Occupational Pensions Authority (EIOPA) may have its own views on how this proposed legislative power fits with its own clear supervisory expectations set in SPoRs that are notably addressed to BaFin. EIOPA itself communicated further supervisory expectations as part of its SPoRs at the start of 2019 (see our dedicated coverage from our Eurozone Hub on this.) Other ambiguity in the original drafting that has now been resolved in the approved form of the Brexit-StBG relates to how payment services will be dealt with, including implementing similar TPRs for those firms to whom the German Payment Services Supervision Act applies when providing payment services and electronic money transactions from establishments from the UK.
As the Brexit-StBG is effectively a tax driven piece of legislation, it also has some specific regulations on how real estate transfer tax and inheritance tax are dealt with. This may impact certain transactions. Further, there are regulations for companies incorporated under British law (in particular Limited companies, which may also be able to be converted into German limited companies – GmbH) so that Brexit does not trigger the disclosure and taxation of hidden reserves. The amendment states that it concerns the “renunciation of unwanted tax revenue.”
What the Brexit-StBG does not do in the same manner, but which other EU Member States have done, is provide for grant extended recognition to settlement systems. This is the case even if Art. 12 of the Brexit-StBG aims to make technical changes to Art. 102 of the German Securities Trading Act (Wertpapierhandelsgesetz) and thus permits German domiciled market participants access to UK trading venues for up to 21 months as granted by the BaFin. As this change affects law and principles that are derived from and/or identical provisions set in EU law, notably MiFID II/MiFIR and/or the competencies of ESMA as well as the SPoRs, certain questions do present themselves as to whether this too could cause friction. Similarly, German legislators have not taken similar measures as in other Member States to permit “easier” transitions of contractual relationships even if the German government has made it easier to convert German presences of UK headquartered entities into German companies.
With the withdrawal of the UK from the European Union, the UK will no longer be a member of the European Investment Bank. The UK shall then no longer hold any interest in the subscribed capital of the Bank, shall no longer be entitled to nominate members and alternates of the Board of Directors, and the term of office of the members and alternates of the Board of Directors nominated by the UK shall end after the Brexit.
To enable the German representative to approve the planned amendment to the Articles of Association in the Council of the European Union, the German Federal Government has submitted a draft Act to grant approval pursuant to Section 7 (2) in conjunction with Section 1 of the Integration Responsibility Act (Integrationsverantwortungsgesetz-(IntVG)) for the European Investment Bank’s proposal to amend the Articles of Association by October 15, 2018. It states that in order to maintain the capital of the European Investment Bank at the same level, the remaining Member States must increase their share of the subscribed capital. Furthermore, you can use the Amendment of the Articles of Association Measures to improve the internal organization of the Bank, in particular in the following areas: risk management and regulatory supervision as well as to strengthen the Board of Directors.
The French Ministry of Economy and Finance (Ministère de l'économie et des finances) published Ordinance (No 2019-75) on preparatory measures for the withdrawal of the UK from the EU in the field of financial services (Ordonnance n° 2019-75 du 6 février 2019 relative aux mesures de préparation au retrait du Royaume-Uni de l'Union européenne en matière de services financiers) on February 7, 2019 (the French Brexit Law). According to the French Brexit Law, a number of measures are expected in relation to financial services, which will enter into force from the date of the UK's withdrawal from the EU in the case of No Deal Brexit.7
So far, the French government has not announced a temporary authorization scheme for incoming UK financial companies and funds. The measures of the French Brexit Law are described below.
According to the French Brexit Law, the French Prudential Supervision and Resolution Authority (Autorité de Contrôle Prudentiel et de Résolution - ACPR) would also have the power to monitor compliance with French law with regard to the implementation of agreements concluded before Brexit on the basis of the cross-border passport or branch passport which the parties continue to implement after Brexit. It remains to be seen how the ACPR will discharge these powers in conjunction and/or cooperation with the ESAs as well as the ECB-SSM, either as a result of specific existing EU-level legislation and/or the SPoRs.
The French Brexit Law provides for the protection of French-domiciled insurance policyholders who have concluded an insurance contract with a British domiciled risk carrier prior to Brexit. The British domiciled risk carriers are recommended to transfer their risk insurance business domiciled in France to an EU risk carrier. Should UK insurance companies not comply with such conditions - the insurance contracts will be invalid, although such invalidity will not be enforceable against insured parties, subscribers and beneficiaries. Insurance contracts entered into by UK insurance companies cannot be renewed and also cannot provide for the payment of new premiums, in the event of a No Deal Brexit. This approach goes beyond, for example, what is being proposed by Germany’s BaFin in their approach but is in line with a more stringent reading of the SPoRs.
One of the newly published measures is to recognize UK interbank settlement systems and delivery and settlement systems, as systems that would benefit from the provisions of Directive 98/26/EC on settlement finality in payment and securities settlement systems. The aim is to prevent French participants in such schemes from being excluded from the UK schemes because of the legal uncertainty that would result from the fact that the UK schemes would not be recognized (by the French authorities) as benefiting from the provisions of Directive 98/26/EC. This is a unilateral right imposed by French legislation, and it is not clear whether this would be compatible with EU-level law and/or the SPoRs or how it would upset measures of other legislative policymakers of those advancing NEBL instruments in “their” jurisdictions.
The French Financial Markets Regulator (Autorité des marchés financiers) (AMF) has been designated as the competent authority for the supervision of securitization-related activities. For the implementation of specific rules for the management of collective investment schemes whose assets correspond to certain investment ratios in European companies, the French Brexit Law provides for a grandfathering clause in respect of investments in UK collective investment schemes. However, even after Brexit (for a period to be determined by an order (Arrêté) of the French Minister for Economic Affairs, British firms will still be eligible for certain investment quotas in European firms for a maximum period of three years. As with the provisions proposed in Germany, this proposed empowerment of the AMF may collide with the regulatory perimeter either in existence with borders drawn by EU-level legislation or as sharpened by the SPoRs.
The French Government has taken measures to adapt French law with regard to the volume of netting transactions and the possibility of compound interest in order to allow framework contracts for financial services to be governed by French law. It also provides for a mechanism for the transfer of framework agreements on financial services (such as ISDA agreements) from UK domiciled firms to French domiciled firms in the same group. These measures are aimed specifically at derivatives transactions and require that:
Effectively this aims to ease large-scale substitutions and replications of documented relationships (also in conceptual accordance of the doctrine of novation under French law, which differs in part to that under English law). This is welcome, if at yet untested by the courts nor is it clear whether this will work operationally without issues arising, especially if booking center details do not change. The ability to make use of this transfer-window to get the documented relationships rebooked into a French entity and then make subsequent amendment to tidy-up the parts that do not work (including operational arrangements) or documents linked to say finance facilities (which may not avail of this transfer window) is something that raises a number of questions.
This transfer of framework agreements for financial services may be made based on the tacit consent of the French domiciled “client” counterparty to the group, unless the French counterparty has objected to such a transfer within five days of receipt of the transfer proposal. It is unclear how this provision would work in situations where there is no French domiciled but say a German domiciled client. As a result, the need for counterparty consents is still very much likely to be required. Moreover, this transfer mechanism will only be available for 12 months from the date of entry into force of the French Brexit Law - consequently from the Exit Date and in the absence of an EU-UK Withdrawal Agreement.
Other derivatives related changes made by the French Brexit Law include changes to how default interest due for a period of less than one year for derivatives instruments is compounded and equally the scope of financial transactions (emission allowance units, spot foreign exchange transactions or transactions in gold, silver, platinum, palladium or other precious metals) eligible for French law operation of close-out netting. These changes have been made in the context of ISDA’s publication of its French law version of the 2002 Master Agreement and are necessary irrespective of the Brexit-driven changes.
Italy has also been quick to issue its own Brexit-planning updates and approved Law Decree No. 22 of March 25, 2019 detailing its Brexit preparations (the Italian Brexit Law), which became effective as from March 26, 2019. Moreover, the Banca d’Italia (the BdI), which is an SSM NCA, has called on British financial institutions operating in Italy to inform their Italian clients about the measures adopted and the consequences for existing contractual relations, underlining the need to ensure full compliance with contractual obligations and the provisions governing their activities in Italy. This in part follows some of the principles communicated in the SPoRs.
This BdI communication issued on February 19, 2019, which was sent by the BdI to banks, payment institutions and e-money institutions authorized to provide their products and services according to procedures under European law, gives clear indications as to which information has to be provided promptly to all customers to ensure an orderly, transparent and correct management of existing relationships following “Brexit.” Communications must be written in clear and plain language and include the contact details for customers requiring clarification and assistance, and the same information must be published on banks’ websites. If significant effects on contract continuity or on customers’ rights are expected, financial institutions must promptly inform the BdI, using the dedicated email addresses.
The Italian Brexit Law aims to protect financial integration, the stability of the Italian financial system, the continuity of trading and the provision of financial services and the rights of Italian clients. UK firms that are carrying out their activities in Italy at the date of withdrawal are allowed to continue carrying out such activities during an 18-month transitional period, provided that they send a notice to the relevant Italian authority. In particular:
UK firms must inform their clients, other persons with whom they have dealings and the relevant Italian authorities of the initiatives taken to ensure the orderly termination of business and of the operating regime applicable to UK firms within 15 days from the date of entry into force of the Italian Brexit Law. The notice to the relevant authority to continue banking activities and financial services during the transitional period must be sent no later than three working days prior to the date of withdrawal, in accordance with the procedures to be laid down by each competent authority in Italy.
Spain has (currently) more British citizens resident within its jurisdiction than any other EU country. Official figures indicate that there are more than 300,000 British nationals living in Spain—some estimates suggest that the actual number is closer to one million, a large amount of which are either pensioned and/or of pensionable age or working in Gibraltar—a contentious Brexit-related twist in its own right. As a result, a number of these British nationals are users of financial services from Spanish providers or reliant on UK financial services providers being able to provide retail financial services to them in Spain, including relating to health and other insurance products.
The Spanish government has sought to reassure British nationals living in Spain that they are working on agreements to ensure their right to live and work in the event of a No Deal Brexit and have set up a dedicated website. In January 2019, the Spanish government announced in Madrid that it was planning emergency measures to ensure medical care for British citizens living in Spain from the time the UK leaves the EU, if no agreement is reached, provided it is based on the premise of reciprocity. A similar arrangement is proposed for participation in local elections.
The Spanish government’s new Royal Decree-law (decreto ley) outlining contingency plans for British residents after a No Deal Brexit (the Spanish Brexit Law), sets out the following key points (although the law is more focused on guaranteeing rights for current residents (not necessarily new residents) rather than creating a framework for financial services):
However, the Spanish authorities assure that the procedure for granting this new status to British nationals legally residing in Spain will be “virtually automatic.”
Article 19 of the Spanish Brexit Law covers all measures adopted concerning financial services and is intended for UK and Gibraltar financial entities that currently operate in Spain, and it contains several main provisions:
On January 29, 2019, the draft “Dutch Brexit Act” was adopted by the Dutch Parliament (Tweede Kamer) and sent to the Dutch Senate (Eerste Kamer) for consideration. The explanatory memorandum to the Dutch Brexit Act provides that the proposal is a product of an inventory carried out to see whether Dutch legislation needs to be amended as a result of Brexit. This stocktaking was because the withdrawal of the UK will lead to the loss of its EU membership, irrespective of whether a consensus is reached on a withdrawal agreement or whether the UK leaves the EU without an agreement. The existing legal frameworks provide sufficient flexibility to act quickly and appropriately in each of the scenarios currently foreseen - therefore, the Dutch Brexit Act only contains technical changes to Dutch legislation that are absolutely necessary and must come into force on March 30, 2019 and will run, thus applying Dutch TPR-style relief, for a period up to six months.
Neither the Dutch Brexit Act nor the accompanying explanatory notes contain (or mention) changes or measures specifically addressed to the financial sector. However, this general provision may also serve as a basis for legislative measures to be taken in the financial sector.
Given the complexity and scope of the legislation that may be affected by Brexit, the Dutch legislator considers it important that rapid legislative action can be taken in cases of urgent unforeseen problems arising from Brexit. This is only necessary as far as it is necessary for the proper implementation of a Brexit-related binding EU act or to avoid unacceptable consequences.
Equally, on February 4, 2019, the Netherlands Minister of Finance adopted an adjustment to the Dutch Exemption Regulation (Vrijstellingsregeling Wft), pursuant to which UK licensed MiFID firms are permitted to continue to provide investment services to professional investors and eligible counterparties in the Netherlands and perform investment activities in the Netherlands without having to apply for a license in case of a No Deal Brexit.
On March 7, 2019, an Act (level I) and a Regulation (level II) implementing the option under Recital 7 of the Settlement Finality Directive (the SFD) to apply the SFD to domestic institutions participating in payment/securities settlement systems governed by the law of a third country (non-EEA systems) in the Dutch Bankruptcy Act (Faillissementswet, Bankruptcy Act) entered into force.
Therefore, the Dutch Brexit Act contains a general provision that allows necessary legislative measures to be taken rapidly through a general administrative order or ministerial decree instead of amending the law. These emergency measures are in principle of a transitional nature, i.e. they are usually temporary and/or are replaced by a more structured / formal legislative measure
Moreover, the Dutch government announced in its letter to the Dutch Parliament that British citizens with a valid right of residence in the Netherlands could reside in the Netherlands even after a 'no deal' Brexit on January 7, 2019. The Dutch government has decided that British citizens and their families legally residing in the Netherlands before March 29, may live, work and study in the Netherlands for at least another 15 months in the event of a Brexit through no fault of their own. This transitional system also applies to family members of British citizens who do not hold EU citizenship themselves. During this 15-month period, the Dutch Immigration and Naturalization Service (Immigratie en Naturalisatiedienst - (IND) ) will ask the approximately 45,000 British citizens legally residing in the Netherlands to apply for a permanent residence permit, which will be required after the transition period. The IND will spread the invitations beyond the transitional period so that all those concerned can organize their future stay in the Netherlands properly. British citizens are entitled to the permit if they fulfil the same residence conditions as EU citizens.
The Belgian government presented a draft Brexit Act to the House of Representatives on February 19, 2019 (the Belgian Brexit Law). The legislation addresses federal issues that need urgent attention in order to cope with the No Deal Brexit scenario. The draft law is part of a series of preparatory measures taken by the government as per the European Council’s request to Member States to intensify work of December 13, 2018.
In the area of financial services, the Belgian Brexit Law is mainly a delegation of power to the Belgian government but also the Belgian Financial Services and Markets Authority (FSMA), which next to the National Bank of Belgium (NBB) as the lead prudential regulatory authority, certainly for the banking sector, is the competent conduct of business regulator. FSMA in turn has issued its own communication to the market which, along with powers of the government to adopt specific measures to either extend or clarify application of EU and Belgian requirements to third-country firms – and thus those in or operating from the UK.
FSMA’s communication invites UK firms to inform immediately if they intend to continue operating in Belgium post-Brexit and, to the extent not already done so, file the relevant notification or application. Both the Belgian Brexit Law and FSMA’s most recent communications give an idea of the direction Belgium will take in granting certain transitional arrangements to financial services companies such as credit institutions, investment firms, payment institutions, fund managers and certain credit providers and credit intermediaries.
As with efforts of other Member States the law aims to protection of investors’ interests, to preserve the proper functioning, integrity and transparency of financial markets. This is done by:
Under Belgian law, for example in the field of investment services, Articles 13 and 14 of the Law of October 25, 2016 on the taking up, pursuit and control of the activity of providing investment services and the status and supervision of portfolio management and investment advisory companies, define the conditions under which investment firms governed by the law of third countries are authorized to offer investment services and/or to carry on investment activities in Belgium. These provisions require the establishment of a branch in Belgium, except for the provision of investment services to certain specific types of clients, namely eligible counterparties, professional clients per se and, subject to an additional condition of equivalence, nationals of the Home State of the undertaking concerned or of a State in which that undertaking has established a branch. However, FSMA is authorized to prohibit the provision of such services in Belgium if no branch is established there, where the undertaking concerned is governed by the law of an EU Member State which does not grant the same possibilities for access to its market for investment firms governed by Belgian law.
The continuity of these contracts could thus be called into question if their mere execution, or if certain events occurring in the context of their execution (“life cycle events8
) were to involve the provision of a (new) service or the exercise of a (new) activity and thus require, in Belgium, an approval, registration, or at least an authorization from the Belgian NCAs. The Belgian Brexit Law’s powers for the government and/or NCA to take action aims to permit a Belgian TPR for those contracts and activity subject to time limits the supervisors consider appropriate.
Similarly, in the case of insurance contracts, services provided under insurance contracts may be considered as constituent elements of the insurance activity and therefore require, in principle, an authorization system. Insofar as the services provided under insurance contracts may constitute an insurance activity, it is therefore appropriate, for the protection of insurance creditors (policyholders and beneficiaries), to allow the performance of contracts concluded prior to Brexit and—where appropriate—their renewal, but excluding the conclusion of new insurance contracts, thus in keeping with the SPoRs.
Based on the Belgian Brexit Law, the government could further define in the field of investment services which life cycle events are considered to involve the provision of a (new) investment service or the exercise of a (new) investment activity in order to grant them the regime allowing their proper performance. It is at present unclear as to whether such action by the Belgian government would be taken unilaterally or in consultation with other EU Member States, or by the FSMA and NBB in conjunction or consultation with respective EU and other national competent authorities.
Luxembourg’s Brexit efforts have culminated in a legislative bill (the Luxembourg Brexit Law) that confers further powers on the Financial Sector Supervisory Commission (CSSF) and the Office of the Insurance Commissioner (CAA), the power to take temporary measures to ensure the stability and proper functioning of the financial sector while ensuring the protection of depositors and investors in a No Deal Brexit
A significant number of British financial companies operate in Luxembourg on the basis of EU passporting rights. The Luxembourg Brexit Law introduces its own TPR up to a maximum period of 21 months following the Exit Date. This includes measures whereby the CSSF and the CAA have the possibility to treat British companies and institutions having contractual relations with Luxembourgish counterparties at the time of withdrawal as continuing on the basis of what are otherwise “expired passports”. These provisions apply only to contracts in force at the time of withdrawal of the UK, or to contracts concluded after that date, which are closely linked to a contract concluded before that date. Further details on the approach of the Luxembourgish government and/or the NCAs remain, at the time of writing, sparse.
Poland has prepared a trio of transition measures in the event of a No Deal Brexit. Financial services related measures and fallbacks are set out in one draft law, which is set to enter into force on March 30, 2019 (the Polish Brexit Act). The Polish Brexit Act permits UK or Gibraltar financial institutions that have provided services in Poland through a branch or across borders prior to March 30, 2019 to continue to provide selected services. The right to continue to perform contracts will be limited (12 or 24 months) from Brexit, depending on the scope of services.
British and Gibraltar companies have the right, and are entitled, to continue certain pre-Brexit financial contracts without the need of a Polish regulatory authorization during the following period of the Polish TPR:
The Polish Financial Supervision Authority (Komisja Nadzoru Finansowego (KNF) has also used the Polish Brexit Act to clarify certain rules on the conclusion of an outsourcing contract with a third country entity or a contract stipulating that the outsourced activities will be performed in a third country. The Polish Brexit Act on this point would ideally need to be read in conjunction with applicable EU regulatory requirements on outsourcing, notably the EBA’s revised Guidelines on Outsourcing.
While the efforts of individual EU Member States and their now passed and/or proposed NEBLs may be welcome, even if they have gaps amongst them, and it is not clear when and how the EU will fill them, affected firms in the UK as well as those in the EU-27 will want to take quick action to ensure the provisions and opportunities are reflected appropriately in their strategic planning. This also includes looking at the terms for how to document engagement with their respective counterparties and/or end-users of respective financial services.
In many instances, the TPRs may lead to more of a false sense of security than a robust fallback. This is specifically the case given concerns from EU supervisory policymakers and interest on certain business and booking models, notably the perceived over-use of reverse solicitation. That heightened interest could turn to even sharper scrutiny than set out in the SPoRs or where the SPoRs’ outcomes have been widened, including on say limiting the permitted use of back-branching by EU domiciled entities in third-countries—see standalone coverage on this from our Eurozone Hub.
If you would like to discuss any of the items mentioned above, in particular how to forward-plan any impacts on operationalizing compliance across documentation and non-documentation workstreams or how these priorities may affect your business or your clients more generally, please contact our Eurozone Hub key contacts.