EBA issued a statement reminding financial institutions that the transition period between EU and UK will expire on December 31, 2020; this will end the possibility for the UK-based financial institutions to offer financial services to EU customers on a cross-border basis via passporting. EBA calls on the institutions to finalize the full execution of their contingency plans in accordance with the conditions agreed with the relevant competent authorities and to communicate adequately with the concerned customers in EU. On July 07, 2020, EC had also notified its stakeholders that, from January 01, 2021, the UK-based financial institutions that do not hold valid authorization from the competent authorities in EU will lose their authorization to provide services in EU.
Finalization of preparations and authorizations with relevant competent authorities in EU
To continue to provide services in EU, relevant UK-based financial institutions need to ensure that they have appropriate authorizations from EU competent authorities, including for their existing branches operating in EU, and fully establish those operations. Financial institutions should ensure that associated management capacity, including appropriate technical risk management capabilities, is effectively in place ahead of time. Moreover, financial institutions should not outsource activities to such an extent that they operate as "empty shell" companies, but are expected to increase their EU footprint, including their local resources in proportion to the amount of business being conducted in and from EU. Financial institutions should focus on areas where further action stills needs to be taken—namely, changing and moving contracts and clients, systemic exposures to UK-based financial market infrastructures, and access to funding markets, including possible related capital impact. Institutions should also take necessary actions to address impact on rights and obligations of their existing contracts, specifically the derivative contracts. In their preparations for the end of the transition period and ramping up their EU operations, financial institutions should duly comply with all applicable EU legislation and pay attention to prudential, consumer protection, and anti-money laundering and countering financing of terrorism (AML/CFT) requirements.
Preparations by payment and electronic money institutions
Contingency plans remain especially relevant for payment and electronic money institutions, where many services in EU have been provided by the UK-based institutions on a cross-border basis benefiting from the EU passporting arrangements. UK-authorized payment and electronic money institutions that wish to continue to offer services to EU-based customers, after December 31, 2020, need to be adequately authorized beforehand by an EU competent authority. As a condition of authorization, relevant UK-based payment and electronic money institutions are required to submit application documents that are compliant with the EBA guidelines on authorization and registration under the revised Payment Services Directive (PSD2). Furthermore, account information service providers and payment initiation service providers registered or authorized in the UK will no longer be entitled to access customers’ payment accounts held at the EU payment service providers and their PSD2 eIDAS certificates under Article 34 of the Commission Delegated Regulation 2018/389 will be revoked.
Communication to customers
Financial institutions affected by the withdrawal of UK from EU should provide adequate information to their customers in EU regarding the availability of services after the end of the transition period. Institutions ceasing their activity should inform the EU-based customers in due time (before the cessation) about the effect of cessation on the provision of services and the way to exercise their rights, to avoid any detrimental effects for clients. If EU-based customers have concerns about whether they may be impacted by the withdrawal of UK from EU and they have not been contacted by their financial service providers until now, the customers have the right to contact financial institutions and their respective competent authorities directly.
Keywords: Europe, EU, UK, Banking, Brexit, Transition Period, Passporting, Contingency Plans, Authorization Applications, PSD2, EC, EBA
Previous ArticleSRB Chair Discusses Centralized Liquidation Regime for EU
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.
The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.
MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
PRA published the policy statement PS19/20 on the final policy for extending coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balance.
EBA published the final draft implementing technical standards for disclosures and reporting on the minimum requirements for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) requirements in EU.
EBA published an erratum for the phase 2 of technical package on the reporting framework 2.10.
EC published the Implementing Regulation 2020/1145, which lays down technical information for calculation of technical provisions and basic own funds.