Brexit & Financial Services
Assisting banks, asset managers and insurers in times of uncertainty
Financial markets play a central role in the economic development of the European Union (EU) and the United Kingdom (UK). This has been true in the past and will remain so after Brexit.
In the aftermath of the 2008 global financial crisis, the EU – including the UK – has made significant efforts to stabilize financial markets. The resulting regulation is complex and encompasses rules for banks and insurers, but also other providers of financial services, such as securities investment funds, and alternative investment funds, including real estate funds, private equity and brokers, to name a few. As a consequence, the regulatory environment for financial services is highly harmonized and based on European Directives implemented on a national level as well as European regulations.
Much has been written and said about Brexit. We perceive a real risk that competition and supply may deteriorate, making it harder for real-economy companies to get financing and find investors.
- Banks: Compared to other financial services sectors, banks headquartered in the UK will most likely be hit hardest. They will no longer be able to rely on their passport under the CRD IV, as it does not include any provisions for third-country access to EU markets. Many UK-based banks have already made decisions to relocate some operations to maintain their ability to trade with the EU27.
- Asset managers: Asset managers should be less affected than banks, since the AIFM Directive grants cross-border rights to non-EU firms, providing that equivalence is recognized by the European Commission and the firm is authorized by the European Securities and Markets Authority (ESMA). In contrast, the UCITS Directive does not contain a third country equivalence framework, and requires a fund and its management to be located in the EU.
- Insurers: The insurance sector should also be less affected than banks since the Solvency II Directive recognizes the fact that the insurance industry is a global industry. The European Commission can decide about the equivalence of a third country’s solvency and prudential regime. However, there is no such provision for primary insurance, and a number of insurers have already made decisions to set up subsidiaries in the EU27.
The BDO Financial Services practice assists financial institutions with strategy, client relationships, profitability and capital allocation. Our services include:
- Decision making on markets/jurisdictions
- License applications
- M&A and transaction services
- Transition agreements
Brexit will not happen until 2019 at the earliest, but it is time to start planning a route to post-Brexit success. Download our “Brexit & Financial Services”paper, and contact us to discuss your response plan and options.
Download Brexit and Financial Services