On July 19, 2018, the European Commission published a Communication on preparing for the withdrawal of the U.K. from the EU on March 30, 2019. Alongside the Communication, a factsheet has been published entitled, "Seven Things Businesses in the EU27 Need to Know in Order to Prepare for Brexit." In the Communication, the Commission warns all stakeholders that "[p]reparation must therefore be stepped up immediately at all levels and taking into account all possible outcomes." The Commission highlights that it is not yet certain that an agreement will be in place by exit day (March 30, 2019) and that a cliff-edge scenario could still occur. Without ratification of the Withdrawal Agreement, there will be no transitional period providing a further 21 months to prepare for when EU law ceases to apply to and in the U.K. and the Commission is urging all stakeholders to prepare for all scenarios.
In the Communication, the Commission counsels the financial services sector (see page 14) to prepare for a "hard Brexit." The Commission advises that ensuring that there is no disruption to their current business model and that they can continue to serve clients is the responsibility of all operators in all financial services sectors. Notably, the Commission is not concerned, at this stage, about any contractual continuity issues on the principle that the performance of existing obligations can continue post-Brexit. However, the Commission notes that "every type of contract needs to be looked at separately."
The Commission remarks that on Brexit, the U.K. will become a third country but omits to discuss the options for access to the EU available to financial services actors under the equivalence regime. In a speech given in New York on July 12, 2018, Michel Barnier indicates that the equivalence regime is the EU's preferred basis for the future EU-U.K. relationship in financial services. An enhanced equivalence framework was proposed by the U.K. Government in the White Paper released last week.
The Commission reminds financial services stakeholders of the eight notices it published last year on contingency planning and preparing for Brexit as well as the opinions and guidance published by the European Supervisory Authorities and member state national regulators. Furthermore, the Commission alludes to legislative proposals amending supervisory arrangements to address financial stability risks. These are the proposals to amend the European Market Infrastructure Regulation to give more supervisory powers to the European Securities and Markets Authority over third-country CCPs and the proposals to amend the role of the ESA's more generally. The Commission calls on the EU legislators to finalize the proposed legislation promptly.
Finally, the Commission notes that the technical working group co-chaired by the Bank of England and the ECB, which focuses on risk management in the period around March 30, 2019, will report to the Commission and HM Treasury.
The Communication confirms that the EU and U.K. are aiming to agree the Withdrawal Agreement in October 2018 and to publish a political declaration on their future relationship at the same time.
The Communication can be viewed at: https://ec.europa.eu/info/sites/info/files/communication-preparing-withdrawal-brexit-preparedness.pdf and the related factsheet can be viewed at: https://ec.europa.eu/info/sites/info/files/factsheet-preparing-withdrawal-brexit-preparedness-web_0.pdf.
You might also like to see our short client note "European Commission Confirms No Issue With Contract Continuity on a Hard Brexit." This can be viewed at: https://www.shearman.com/perspectives/2018/07/european-commission-confirms-no-issue-with-contract-continuity-on-a-hard-brexit.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
