UK Exit from EU: Impact on Financial Services

Alan PenhallowUK Exit from EU: Impact on Financial Services by Alan Penhallow

The UK exit from the EU would likely to have a significant impact on the financial services sector in the UK. The nature and extent of that impact would be heavily dependent on the model of EU-UK co-operation adopted as an alternative to EU membership and the nature of the UK's access to EU markets after the UK's exit says a report from Herbert Smith Freehills LLP.

Currently, a UK authorised firm has the right to carry on business in another EEA state, with or without a branch, provided the requirements of the single market directive under which the activities will be carried out are met. This important "passporting" right allows UK authorised firms, including banks, investment firms, asset managers, insurers, insurance intermediaries, payment services providers and E-money firms, free access to EU markets. Depending on the nature of the exit, leaving the EU could mean either restricted EU market access for the UK, with "third country" status following an exit, or continued access to EU markets but without the ability to vote on financial services legislation e.g. as an EEA/EFTA member.

Almost the entirety of UK financial services legislation over the past ten years has EU legislation as its source. The move towards the European Single Rulebook has also meant that many EU rules are now directly applicable in the UK. If UK regulatory policy began to diverge significantly from the EU approach, this would create additional burdens for firms with cross-border interests who would need to comply with yet another set of regulatory requirements.