Brexit: Implications for Financial Services in Finland and Sweden
17 January 2019
Authors: Sanna Boow, Albert Danielsson Senni Mäki-Hallila Paula Röttorp Jari Tukiainen
The UK is due to leave the European Union (EU) on 29 March 2019.
The UK and the EU published a draft Withdrawal Agreement in November 2018. The draft Withdrawal Agreement, if concluded, would provide for a transition period ending on 31 December 2020 during which EU law would continue to apply in the UK.
The UK Parliament has, however, rejected the Withdrawal Agreement in its current form.
In the absence of any further action by the UK or the EU, the UK will leave the EU at midnight (CET) on 29 March 2019 (the “Brexit Day”).
What Does Brexit Mean for Financial Services in Finland and Sweden?
UK Will Be a “Third-Country” with Respect to the EU
• After the Brexit Day, the EU framework for financial services regulation will no longer apply in the UK. UK firms’ activities in the EU will be governed by each EU Member State’s national legislation and any applicable EU rules that apply to third-country entities (countries outside of the European Economic Area (EEA)).
• The UK will treat EU Member States and EU firms (including Finnish and Swedish firms) largely the same way as it does other third countries and their firms.
Financial Services Passports Will Cease to Apply on Brexit Day to UK Entities Providing Financial Services to Finnish and Swedish Clients
• UK firms providing financial services to Finland and Sweden will need to be appropriately authorised by the Financial Supervisory Authority in Finland and Sweden (as applicable)to be able to continue to carry out financial services in Finland and Sweden after the Brexit Day.
• This means that Finnish and Swedish customers of UK banks and financial services firms may lose their ability to access some of the following products and services currently provided by UK entities after the Brexit Day:
1) investment funds (both UCITS and alternative investment funds);
2) investment services (such as execution of orders, portfolio management services, and investment advice);
3) banking services (such as lending and deposit services);
4) payment services; and
• There is some relief available in respect of investment services.
• In Finland, there is a government proposal to amend legislation to introduce a cross-border licence for third-country investment service providers. As long as the UK investment service provider applies for the cross-border licence by the Brexit Day, it will be able to continue to provide the services in Finland to professional clients in accordance with the terms of its EU passport until the FIN-FSA has processed the firm’s licence application. The proposed cross-border licence will apply only to investment services – not to banking services or the sale of investment funds. Hannes Snellman Legal Update regarding the cross-border licence is available here.
• In Sweden, there is a proposal to delegate to the government or a public authority the power to allow UK investment firms to continue to provide services to existing professional clients during a transition period. This is still at an early stage in the legislative process, and no formal legislative proposal has yet been published.
Financial Services Passports Will Cease to Apply on Brexit Day to Finnish and Swedish Entities Providing Financial Services to UK Clients
• Finnish and Swedish financial services firms will also lose their right to provide financial services to UK clients under their EU passport.
• This means that the provision of the products and services listed in items 1 to 5 above to UK clients by Finnish and Swedish entities will be a licensable activity in the UK post-Brexit.
• The UK has provided for a temporary permissions regime, which will allow EEA (including Finnish and Swedish) firms to use their EU passport to operate for a limited period while they seek authorisation from the UK’s Financial Conduct Authority or the Prudential Regulation Authority after the passporting regime has fallen away. To be entitled to a temporary permission, the firm will need to inform the relevant UK regulator before the Brexit Day of their intention to apply the regime.
• Some Finnish and Swedish firms, which do not have a permanent place of business in the UK, may also be able to rely on the “overseas persons exemption”. This exemption is, however, limited and does not apply to all regulated activities.
Loss of Passporting Rights and Uncertainty for Continuity of Existing Contracts
• Both the Withdrawal Agreement and the Political Declaration are silent on what happens to existing client contracts and relationships entered into pre-Brexit, and whether the loss of authorisation will trigger licence requirements for ongoing services. This is particularly relevant for banking services (such as deposit services, lending and payment services) and investment services (such as derivative contracts and portfolio management services).
• There is a risk that the performance of at least some of the above services will require a licence post-Brexit even when provided to existing clients.
• If a firm no longer has a cross-border licence due to loss of passporting rights, it may be difficult or impossible for the firm to perform, or for the other party to enforce, the contractual obligations.
Hannes Snellman Assists with Any Brexit-Related Questions
The financial services regulation team at Hannes Snellman is available to discuss any questions relating to Brexit, and we would be happy to assist you in applying for regulatory authorisations.