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Brexit Exemption for investment firms

  • United Kingdom
  • Netherlands
  • Brexit

07-02-2019

On 4 February 2019, a ministerial regulation was enacted by the Dutch Secretary of Finance to extend the scope of the so-called “Section 10 Exemption” in the event of a hard Brexit (the no-deal scenario) (the “Ministerial Regulation”). Pursuant to the Ministerial Regulation, certain investment firms with registered offices in the United Kingdom (“UK”) may apply for the Section 10 Exemption as a result of which they will be exempt from the obligation to obtain a license from the Netherlands Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, “AFM”) for the provision of investment services to eligible counterparties or per se professional investors or to trade for own account in the Netherlands.

Third country

The UK will officially leave the European Union (“EU”) on 29 March 2019. At present there is still a great deal of uncertainty about a possible deal between the UK and the EU. In the event of a no-deal scenario, the UK will qualify as a ‘third country’ in the Netherlands.

If the UK withdraws from the EU without a withdrawal agreement being reached, investment firms with a registered office in the UK can no longer provide investment services (beleggingsdiensten verlenen) or perform investment activities (beleggingsactiviteiten verrichten) in the Netherlands by means of ‘passporting’ their license obtain from the Financial Conduct Authority (“FCA”) into the Netherlands. Without a withdrawal agreement in place, investment firms with a registered office in the UK are obliged to obtain a licence from the AFM in order to be authorised to provide investment services or to perform investment activities in the Netherlands.

Temporarily Exemption

In order to limit the possible negative effects of a no-deal scenario, the Ministerial Regulation will temporarily extend the scope of the Section 10 Exemption under the Exemption Regulation under the Financial Supervision Act (Vrijstellingsregeling Wft) (this the so-called third country regime). In the event of a no-deal scenario, FCA supervised investment firms with a registered office in the UK which solely (a) provide investment services to eligible counterparties or per se professional investors or (b) trade for own account may rely on the Section 10 Exemption. As a consequence, such FCA authorised investment firms will be exempt from the obligation to obtain a license from the AFM.

Investment firms that rely on the Section 10 Exemption are also largely exempt from ongoing prudential supervision (prudentieel toezicht) and market conduct supervision (gedragstoezicht) in the Netherlands.

The temporarily extension of the scope of Section 10 Exemption shall only be in force in the event of a no-deal scenario and until 1 January 2021 or at the latest until two years after the temporarily exemption has come into force.

How Eversheds Sutherland can help

We are one of 9 firms awarded Tier 1 status for our legal advice by the Legal 500, a go-to firm for Brexit contingency planning and legal advice, monitoring of developments and client and industry specific briefings.

Our lawyers and consultants have advised various institutions passporting into the UK from EU27 Member States and passporting from the UK into the EU27 on Brexit planning and Brexit related issues.

We would be happy to discuss how we can help you with your Brexit planning, execution of those plans and how to apply for a Section 10 Application in the event of a no-deal scenario.

For more information contact

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