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The finalised Withdrawal Agreement and financial services

  • United Kingdom
  • Brexit
  • Financial services and markets regulation
  • Financial services



On 14 November 2018, the terms of the Withdrawal Agreement agreed between the UK and the EU (the “Agreement”) were published, along with a Political Declaration (the “Declaration”).

There is considerable political uncertainty as to whether the Agreement will be accepted by each of the UK Parliament, the EU Council and the European Parliament, as it needs to be to come into force. Discussion of the politics of implementing the Agreement is outside of the scope of this briefing. In this briefing we discuss what will happen on the assumption that the Agreement is implemented and the transition period comes into effect.

The Agreement

The Agreement’s objective is to set out the arrangements for the withdrawal of the UK from the EU.

Amongst these arrangements is the transitional period under which EU law will remain applicable in the UK until 31 December 2020, 21 months after the exit date of 29 March 2019 (“Exit Day”). The provisions will have the effect that, until the end of the transition period:

• firms in the UK will have to comply with the UK rules which give effect to EU law and directly applicable EU law

• the powers of EU authorities will continue to have effect in the UK

• UK and EEA firms will continue to enjoy passporting rights

• the UK authorities will have to implement new EU laws in the UK

The Agreement does not deal with the position on financial services.

It should be noted that the transition period only comes into effect if there is agreement on all the terms of the Agreement.

In the event that the Agreement and the transition period did not come into force, the FCA has announced a temporary permissions regime (“TPR”) for EEA firms and funds that will permit, should they elect to participate, firms to continue exercise their passport rights in the UK and funds to continue to market into the UK, for a temporary period of up to three years pending being asked to apply for full authorisation. A similar regime will come into force on 1 January 2021 should the Agreement and the transition period be agreed, but the subsequent UK-EU relationship agreement does not include a deal in respect of financial services.

To read the Agreement, click here.

The Transition Provisions

The Agreement sets out in Part Four the arrangements for a “transition”. The following provisions in Part Four are likely to have the most practical impact:

• Article 126, which states: “There shall be a transition or implementation period, which shall start on the date of entry into force of this Agreement and end on 31 December 2020” (the “End Date”)

• Article 127(1) which affirms that: “Unless otherwise provided in the Agreement, Union law shall be applicable to and in the United Kingdom during the transition period.”

• Article 127(3) which deals with the effects of the application of EU law and states: “During the transition period, the Union law applicable pursuant to [Article 127(1)] shall produce in respect of and in the United Kingdom the same legal effects as those which it produces within the Union and its Member States, and shall be interpreted and applied in accordance with the same methods and general principles as those applicable within the Union.”

• Article 131 deals with the ongoing jurisdiction of the EU authorities, such as the European Securities and Markets Authority (“ESMA”) and the European Banking Authority (“EBA”). It states: “During the transition period, the institutions, bodies, offices and agencies of the Union shall have the powers conferred upon them by Union law in relation to the United Kingdom and to natural and legal persons residing or established in the United Kingdom. in particular, the Court of Justice of the European Union shall have jurisdiction as provided for in the Treaties.”

• Article 185 states that the Agreement shall enter into force on 30 March 2019

The Impact of the Agreement

The practical effect of the Agreement on financial institutions in the UK can be summarised as follows:




Current EU laws


Remain in force in the UK until the End Date – UK law giving effect to/ recognising EU Directives such as MiFID, the AIFMD, the UCITS, until the End Date. EU Regulations such as, MiFIR, the CRR, MAR, EMIR and Level 2 Regulations continue to apply until the End Date.

Powers of EU authorities


Continue to have effect in the UK until the End Date – the powers of the EU Commission, ECB and the European Supervisory Authorities (EBA, ESMA and the European Insurance and Occupational Pensions Authority (“EIOPA”)) to take action against the FCA or PRA for non-compliance with EU law continues until the End Date. Level 3 Measures, such as ESMA Q&A, continue to have binding effect until the End Date.



Continues until the End Date – rights of EEA authorised /UK authorised firms to provide cross-border services into, establish branches in or market products in the UK/other EEA Member States continue until the End Date. Rights which flow from passporting, such as use by inward passporting EEA credit institutions Bank of England Liquidity Facility, continues until End Date.

Forthcoming EU laws


Must be implemented until the End Date – UK is obliged to implement EU Directives and enforce EU regulations, including those which give EEA firms rights in and into the UK, until the End Date.

The Declaration

The Declaration’s objective is to set out a framework for the future economic partnership between the UK and the EU. The document is still being negotiated and a longer, more detailed declaration is expected in time. The Declaration does deal with financial services at a high level and provides only that the UK would be eligible for equivalence findings by the EU, a position no more advantageous than any other third country not in the EU or the EEA, and significantly less advantageous than the enhanced equivalence of the Chequers Proposal.

To read the Declaration, click here.

The Declaration contains the following three points on financial services:


• Commitments to preserving financial stability, market integrity, investor protection and fair competition, while respecting the Parties’ regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest. This is without prejudice to the Parties' ability to adopt or maintain any measure where necessary for prudential reasons.

• Commencement of equivalence assessments by both Parties as soon as possible after the United Kingdom’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020.

• Close and structured cooperation on regulatory and supervisory matters, grounded in the economic partnership and based on the principles of regulatory autonomy, transparency and stability, recognising this is in the Parties’ mutual interest.”

As it currently stands, the text of the Declaration treats the UK like any other third country outside the EU or EEA. The UK is entitled to seek an equivalence assessment for the limited access to the EU’s financial services markets available under the equivalence regimes under the individual directives offering third country firm access or special treatment.

The only more favourable treatment the UK is afforded is a non-binding undertaking on the part of the EU to complete equivalence assessments in respect of the UK by the end of June 2020. Provided the EU meets that timetable, UK financial services firms would know six months before the end of the Transitional Period the basis on which they will be able to access the EU financial services markets when the Transitional Period comes to an end on 31 December 2020.

Some, but not all, EU financial services legislative acts contain mechanisms (third-country regimes) allowing financial institutions based in third countries to gain access to EEA markets. A common precondition for these mechanisms to be available is that the third country's regulatory regime has been deemed to be equivalent to that of the EU. The majority of EU financial services legislative acts do not contain equivalence regimes relating to access rights. The legislative acts that currently contain equivalence assessments relating to access are MiFID II and the AIFMD. Third country regimes are not available for deposit-taking, lending, mortgage lending, insurance mediation and activities relating to UCITS.

The limited scope of the equivalence regimes and the unfettered right of the EU to withdraw an equivalence finding on 30 days’ notice, means that even if the UK is found to have equivalence, it will be difficult for businesses to base any business plans or financial arrangements on the continued availability of such equivalence and then the only sensible course would be to make arrangements as if the equivalence did not exist.

The Declaration is subject to further negotiation and the provisions in relation to financial service. It may be developed more along the lines of the enhanced equivalence discussed in the Chequers Proposal, with a longer notice period for the withdrawal of equivalence and an arbitration mechanism to manage divergence in regulation, elements of which were said to be in a deal which was rumoured to have been agreed a couple of weeks ago. However, because the Declaration is not legally binding, even if it were to include such provisions, again no prudent person would base any business plans or financial arrangements on the Declaration until such time it was made into a treaty and became legally binding.

How Eversheds Sutherland can help

Since June 2016, 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 and execution of those plans.