Financial services - cross-border operations

Impact for single market firms

A significant proportion of institutions regulated by the UK Financial Conduct Authority enjoy 'passport' rights under one of the EU single-market financial services directives, allowing them to provide services or establish a branch on cross-border basis in other EEA member states, without having to obtain fresh licences in those 'host' states.

The decision to leave the EU now poses a major question for these firms that is whether their passport rights will be maintained and how they might provide services to clients or operate in the rest of the EU.

The current passport rights include:

  • The Markets in Financial Instruments directive ('MiFID'), in respect of investment managers, 
  • The Undertakings in Collective Investments in Transferable Securities ('UCITS') Alternative Investment Fund Managers directives ('AIFMD'), for fund managers; 
  • The Capital Requirements directives ('CRD') and regulation ('CRR'), for banks; 
  • The Solvency directives, in respect of insurers.Consumer credit providers are not entitled to a passport, so a lender from another EU member state who currently wants to offer loans to borrowers in the UK would need to set up a UK establishment and apply for authorisation from the FCA.

Consumer credit providers are not entitled to a passport, so a lender from another EU member state who currently wants to offer loans to borrowers in the UK would need to set up a UK establishment and apply for authorisation from the FCA.

It appears that the majority of UK MPs are acutely aware of this potential risk, and are considering voting on a cross-party basis for the UK to remain a member of the European Economic Area ('EEA'), in the event that it leaves the European Union. Current members of the EEA who are not also members of the European Union are Iceland, Liechtenstein and Norway. These countries are not represented in the European Parliament, European Council or European Commission, but are bound to implement directives which have EEA-effect, and thereby enjoy the benefits of the single market and its passport.

The EEA Agreement guarantees citizens of EEA member states the following 'four freedoms':

  • The free movement of goods;
  • The free movement of services;
  • The free movement of capital; and
  • The free movement of persons.

The EEA Agreement does not cover the following EU policies:

  • Common Agriculture and Fisheries Policies (although the Agreement contains provisions on various aspects of trade in agricultural and fish products);
  • Customs Union;
  • Common Trade Policy;
  • Common Foreign and Security Policy;
  • Justice and Home Affairs; or
  • Monetary Union.

Reshaping our thinking - the new EU

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