October 28
2021
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Brexit and Financial Regulation

Jonathan Herbst and Simon Lovegrove (Eds)

review by

Laura Wissink

The book Brexit and Financial Regulation was published a little over a year ago, at a time when much was still uncertain about the terms of Brexit, yet continues to remain relevant. It easily navigates the reader through Brexit developments and provides a comprehensive and practical guidance through Brexit’s legal playing field.

The book considers a hard-Brexit scenario, in which the UK would leave the EU without a deal, as its general point of departure. Unfortunately, this turns out to be close to the current post-Brexit reality for financial services. On 24 December 2020, the EU and UK agreed on their future relationship, laid down in the Trade and Cooperation Agreement (TCA). The TCA includes few provisions on financial services, but in a Joint Declaration the EU and UK agreed to establish structured regulatory cooperation on financial services so as to ensure a durable and stable relationship between autonomous jurisdictions. On 26 March 2021, a Memorandum of Understanding on financial services was concluded establishing the framework for voluntary regulatory cooperation in financial services between the EU and UK. This leaves the financial sector with essentially no deal so far, particularly due to the adoption of so few equivalence decisions by the EU (see below) with respect to the UK (the UK has already granted equivalence in various areas).

The book is separated into three parts. Part 1 provides an overview of relevant Brexit developments and the general post-Brexit legal framework. Its introduction guides the reader through the Brexit process and provides an overview of the legislative and regulatory instruments that have been issued in preparation for both the UK’s exit and the post-Brexit period. The Withdrawal Agreement is discussed in detail in Chapter 2.

A comprehensive overview of the relevant international standards that remain applicable post-Brexit follows (Chapter 3). This Chapter stresses the UK’s commitment to international standards that exists independently from the decision to leave the EU. But it also concludes that international standards alone cannot provide a complete answer to the post-Brexit regulation landscape. Chapter 4 continues with a detailed discussion regarding the equivalence regime as it becomes relevant after Brexit as the UK becomes a ‘third country’ under EU law and vice versa for EU Member States. Firms from jurisdictions that have been determined to be ‘equivalent’ are granted market access rights in specific circumstances (paragraph 4.2). Chapter 4 demonstrates, however, that this regime is not exactly a panacea for the post-Brexit issues, since equivalence decisions do not apply to financial services in general and relate only to specific EU legislation at issue. The Chapter’s overview illustrates the patchwork of the equivalence regime and its lacunae, for example no equivalence regime exists for third country banks (paragraph 4.8).

Part 2 sets out the supervisory regime for the transition period and the post-Brexit period. Since passporting rights, on the basis of which firms authorised to carry out activities in one Member State can do so in another, ceased to exist for UK firms after the transition period, the UK firms may have to carry out their activities via a local branch or require authorisation from the EU in order to continue doing business. The EU’s approach towards authorisations and branches of third country entities is extensively discussed in Chapter 6. The authorisation regimes in Germany, France, the Netherlands and Ireland, four important post-Brexit destinations for UK firms, are also included. The various possibilities for UK firms to do business in each of the four countries, with and without authorisation, are covered.

This is followed by a discussion about the UK’s post-Brexit supervisory regime (Chapter 7), explaining how the initial political idea of a ‘bonfire of regulations’ has been hindered, in practice, by the reality of time constraints. The regulatory changes come down to doing whatever is necessary to get everything up and running for the post-Brexit period, involving the wholesale transposition of EU law into UK law as well as the allocation of EU powers to UK bodies. The Chapter covers, amongst others, the UK framework for financial services; the EU Withdrawal Act 2018; and the approach with respect to ‘onshoring’ of EU law (margin no. 7.39), and; retained EU law and EU case law (paragraphs 7.5.1-7.5.2). As pointed out by the authors, the coming years will show us if the UK will carry through more profound reforms, and whether further divergence between the EU and UK laws is likely.

Chapter 8 elaborates upon the possibilities for EU firms to continue their activities in the UK in the various financial services areas, such as the establishment of branches or subsidiaries and the UK regulators’ approaches in this respect. The overview includes a discussion about transition regimes and periods, and applicable administrative procedures. Lastly, the UK’s Senior Managers and Certification Regime is discussed (Chapter 9) covering, for instance, its scope, the transition regime, and ways in which firms can put these rules into place.

Part 3 contains commentaries on the key pieces of EU law, such as MiFID II, CRDIV, BRRD, and Solvency II. For each of the laws, the Chapter provides general background information, the UK’s perspective when relevant, possibilities for access to that specific EU market, and the key issues related to Brexit. Any expected amendments at the time of writing that may be relevant in the Brexit-context are also mentioned, such as the EU Intermediate Holding Company Regime (paragraph 11.6).

Altogether, the reader is provided with a thorough and practical overview of the legal Brexit landscape. The book lives up to its intention to break Brexit and financial services into manageable pieces. It is clear that the book has been written by leading lawyers and barristers. The broad range of complex legal matters related to Brexit are dealt with through comprehensive discussion regarding each topic and accompanied by practical examples to illustrate the matter.

Despite the legal playing field that is still under development, the book serves as a useful guide for lawyers involved in the financial sector as well as academics interested in gaining a better understanding of the way in which Brexit works in practice.

 

Laura Wissink recently finished her PhD on effective legal protection in the composite administrative procedures of the SSM. She has a background in banking supervision, and is lecturing in European law and Dutch constitutional law at Maastricht University this trimester.

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