Posted by James Worrall, Partner
European Banking Authority warns preparations for a no-deal Brexit by financial institutions are inadequate
The European Banking Authority (“EBA”) has published an opinion in response to the current status of the Brexit negotiations. The opinion cites significant concerns regarding the preparation of financial institutions that will be affected by Brexit, particularly the impact of the potential loss of passporting rights, and highlights the potential for disruption if financial institutions are not adequately prepared for a no-deal Brexit.
The opinion is directed at “competent authorities” (within the UK being the Financial Conduct Authority and the Prudential Regulation Authority) together with credit institutions, investment firms, payment service providers, electronic money institution and creditors and credit intermediaries (financial institutions).
The context for the EBA’s concern is that, whilst the terms of a transitional period following the UK’s withdrawal from the EU in March 2019 have been agreed in principle, in the absence of a legally binding withdrawal agreement the transitional period will not come into effect. The EBA appears to be of the view that time is quickly running out for negotiation of a Brexit deal and that the chances of a no-deal Brexit are increasing. As Brexit negotiators on both sides have pointed out throughout the process, “nothing is agreed until everything is agreed”. The EBA believes that a no-deal Brexit is a material possibility.
Instructions for financial institutions
The EBA has concluded that “progress in the preparations of financial institutions for the potential departure of the UK from the EU without a ratified withdrawal agreement in March 2019 is inadequate”. The EBA instructs affected institutions to pursue mitigating actions without delay. The EBA cites a number of steps that institutions should be taking. These include:
- ensuring they have the necessary regulatory permissions in the UK and the EU
- identifying which existing and future contracts will be affected
- identifying where their data and their clients’ data is stored
- identifying the UK financial market infrastructures to which they need access and considering alternatives.
The EBA instructs relevant authorities to engage with financial institutions to ensure that they have considered their obligations to customers and taken necessary actions to ensure continuity of service of their existing contractual commitments. The EBA expects institutions to provide clear information to customers whose contracts or services may be affected as soon as that information becomes available to them and by the end of 2018 at the latest. The information should include details of the customers’ contractual and corporatestatutory rights, including any right to cancel the contract.
The EBA intends to continue to monitor developments and to engage with relevant authorities to assess the contingency planning being carried out. Affected institutions should heed the guidance provided and take proactive steps now. As time progresses, the regulators in the UK will be engaging with them to assess their preparedness.
For more information contact James Worrall or another member of our Financial Services sector team on
0800 923 2073 Email us
Corporate & Commercial
Our corporate lawyers will get you the right deal and protect your business, now and in the future