On 13 July 2020, the European Commission (EC) published a notice to stakeholders post-Brexit. As the United Kingdom has withdrawn from the European Union, the Withdrawal Agreement provides for a transition period ending on 31 December 2020.
This notice reminds various parties, economic and financial operators, of the implications that the end of the transition period will have on their activities. Following the transition period, the EU rules of the MiFID framework for investment services and activities no longer apply to the United Kingdom.
Below are some of the consequences the EC have highlighted:
Authorisations
- EU passport: following the transition period, entities established and authorised by United Kingdom competent authorities will no longer benefit from the MiFID authorisation and will lose their "EU passport";
- EU subsidiaries: legally independent companies established in the EU and controlled by or affiliated to firms established or authorised in the United Kingdom can continue to operate as EU investment firms if they have obtained a MiFID authorisation in one of the EU Member States;
- Branches in the EU of UK investment firms: these branches will become branches of third-country investment firms, required to comply with national requirements applicable in the Member State where the branch is established;
- Section C(6) of Annex I of MiFID II: in order not to be considered as a financial instrument, a derivative contract must meet three conditions i) it must qualify as a wholesale energy product (ii) it must be traded on an Organised Trading Facility (OTF) and iii) it must be physically settled. The end of the transition period will have an impact on the first two conditions; and
- UK based trading venues and central counterparties (CCPs): UK trading venues and CCPs will no longer benefit from the open and non-discriminatory access to EU trading venues and EU CCPs, as well as EU benchmarks.
Contracts
- Relationships with EU clients/counterparts: the ability of UK established firms to continue performing certain obligations and activities deriving from existing contracts may be impacted post-Brexit. The EC suggests that firms carefully assess the impact of the end of the transition period on their operations and identify and mitigate risks.
Other aspects
- Outsourcing: the outsourcing of certain operational functions to UK providers may be undertaken only when in compliance with relevant MiFID requirements. The European Securities and Markets Authority (ESMA) has issued opinions with specific clarifications on these matters, in particular on the risks of letter-box entities which may arise from the use of outsourcing arrangements;
- Disclosure: firms providing investment services are required to provide clients or potential clients with accurate disclosure, in good time and in any case before clients are bound by any contract, on the impact on the provision of services and investors' rights that may emerge from the end of the transition period; and
- Article 59 MiFID II: UK based data reporting service providers which have not obtained a MiFID authorisation by a competent authority established in the EU will have to cease to serve EU markets.
and then 