The Financial Markets Law Committee (FMLC) has published a paper that focuses on issues of legal uncertainty specific to the application of EU legislation to UK based financial services providers in the event that the UK withdraws from the EU without retaining access to the Single Market under any other legal provision.
The third country regimes offered by EU law are multiple and diverse but they do not, even in aggregate, offer comprehensive access to the Single Market, i.e. across the full range of financial services business lines. Direct access to EU markets is not facilitated by third country regimes, for instances, as far as the following EU regulated activities are concerned: retail investment services, retail fund offerings, wholesale or retail banking services (i.e. deposit taking and lending), or direct insurance. Where access provisions exit, they are often uncertain in their extent or restricted in their coverage. In section two of the FMLC paper, the FMLC analyses legal complexity related to the scope of third country regimes.
The diversity of third country regimes, the peculiarity of the decision-making mechanisms which characterise them and the specificity of the requirements they impose on firms in different industry sectors are explored in section 3 of the FMLC paper. A number of issues of legal complexity are identified which may mean that firms based in a third country face difficulty or delay in bringing themselves within the parameters of the legislative requirements for access.
The issue of delay is considered in section 4 of the FMLC paper. This section makes the point that the process of reaching a decision on the application of third country regimes to firms based in the UK will only begin, in all likelihood, once the UK has withdrawn from the EU. It goes on to consider the factors which may affect the decision-making timetable followed by the EU authorities.
The impact for firms of losing access rights are explored in section 5 of the FMLC paper. In section 6, the FMLC offers a range of short and long term mitigants which may aid in the resolution of these uncertainties.
The impact of a “cliff-edge” scenario on the financial system as a whole is not explored in the FMLC paper.