Brexit UK EU Memos of Understanding and Delegating Authority

Financial services was not part of the Trade Agreement signed between the UK and EU that came into force on 1^st January 2021.

This means that from January financial services firms were not allowed to passport services from the UK to the EU or vice versa.  Many regulators are offering a Temporary Permissions Regime where fully established regulatory operations will be set up in various jurisdictions, that said many smaller financial advisers will not be in a position to do this as it is simply not cost effective if you have say 12 clients in Spain, 3 in Ireland, 2 in Germany, 8 in France etc.

We all wait for the Memorandums of Understanding (MoU), agreed in February/March 2021 to develop.

An MoU is not a signed agreement.  It is simply an understanding that both sides need to talk about various issues and come to agreements on how things should work to ensure continuity for clients and consumers without detriment and improved financial protection.

There are 5 MoUs that have been established 

The 1^st Purpose and General Principle of the MOU: “This multilateral MoU is a statement of intent to consult, cooperate and exchange information in connection with the discharge of the responsibilities entrusted to the Authorities under the Laws and Regulations, in a manner consistent with, and permitted  by, the laws and requirements that govern the Authorities”.  In short, all sides have only agreed to have discussions to try and reach agreements.

1. A multilateral MoU with EU and EEA National Competent Authorities (NCAs) covering supervisory cooperation, enforcement and information sharing relating to, among others, market surveillance, investment services and asset management activities.
2. An MoU with the European Securities and Markets Authority (ESMA) covering supervision of credit rating agencies and trade repositories.
3. A multilateral MoU with EU and EEA NCAs covering supervisory cooperation, enforcement and information exchange between UK and EU/EEA national supervisors in the field of insurance regulation and supervision.
4. An MoU with the European Insurance and Occupational Pensions Authority (EIOPA) covering information exchange and mutual assistance between the UK authorities and EIOPA in the field of insurance regulation and supervision.
5. A MoU with the European Banking Authority (EBA) covering information exchange and mutual assistance between the UK authorities and the EBA in the field of banking.
6. Individual MoUs with EU and EEA NCAs covering supervisory cooperation and information-sharing arrangements in the field of banking. These can be found on the Prudential Regulation Authority (PRA) website. 

The Way Forwards:  Multilateral MoU 1, Article 16. Delegation of Tasks:
“In certain circumstances, an Authority may delegate one or more of its tasks to a Delegated Authority, subject to the agreement of the latter. Delegation of tasks will not affect the responsibility of the delegating Authority including in applying the provisions of Article 14 on confidentiality and onward sharing of information.”  We see this as the way forwards.  If the French regulator wishes to delegate responsibilities of financial advice to the UK Financial Conduct Authority for a French resident (UK or EU National) then delegation of those regulatory tasks to UK FCA would appear to be the most obvious route.  We do hope so as it is crazy that a French resident can do virtually nothing with their pensions or investments in the UK at present unless it is already in the contract terms provided these were signed on or before 31^st December 2020.

What EU regulators are saying:

Links to EU Regulators position from the FCA:  https://www.fca.org.uk/brexit/information-eea-regulators

We have been to many EU regulator Brexit pages and most EU regulators appear to be adopting the inteepretation that we have made below with some also suggesting a run off period of 15 years where all business should be concluded by then. We ask “but what about a pension that a client may not be able to access for another 20 or 30 years?”.  We have posed this question to a number of EU regulators alongside a number of other scenarios and are awaiting responses.

Our Current Interpretation:

If you have UK pensions or investments and you are resident in the EU:

• Existing contracts, whether advised services or ongoing pensions or investments, can continue provided the contract was signed on or before 31^st December 2020.
• You can take actions provided it is within the existing contract but this will likely have to stop after a 15 year ‘run off’ period.
• If you make changes or amendments to your existing contract, this is not allowed as the contract but would then be active from 1^st January 2021 i.e. after Brexit.
• For example, if you have a pension and you are due to retire soon, your pension allows lump sum pay outs and annuities but not flexible drawdown, then you cannot access flexible drawdown with the existing or any new pension provider and can only access lump sums and annuity.
• If you wish to invest new money into an investment or pension or if you wish to continue paying into an existing pension or investment, this is all new money and should cease immediately.

This is clearly a mess and to the detriment of consumers.  We look forward, with hope, to a full and all encompassing financial services trade agreement.  If nothing else, to just to be able to help EU residents with full options on their existing UK pensions and investments.