EBA tells UK financial services to prepare for a Hard Brexit

The European Banking Authority (EBA), the EU’s regulatory oversight agency for financial services, has issued a stern warning to British financial institutions stating that ‘all transitional arrangements’ must be completed by 31 December 2020 – regardless of the outcome of ongoing Brexit negotiations. 

The EBA reiterated the European Commission’s formal notice to UK financial institutions that ‘transitional arrangements will not be extended in any shape or form’ beyond the 31 December deadline.

“Starting from 1 January 2021 financial institutions based in the UK and not holding valid authorisation from the EU competent authorities will lose their authorisation to provide services in the EU,” the EBA said.  

In order to guarantee continued access to EU markets and to comply with the union’s transactional arrangements, UK-based institutions must, therefore, ensure ‘full execution’ of their post-Brexit arrangements.

In its statement, the EBA underlined that it will not tolerate ‘outsourced third party activities’ or the ‘formation of shell companies’ as a bridging facility to EU markets – “each financial institution must ‘increase their EU footprint, including their local resources”.   

A further warning has been issued to UK digital payment and e-money services providers, stating that all services and products are required to be verified as compliant with the EU’s revised PSD2 directive on technical standards and PSP transactional standards.  

As a further requirement, the EBA stated that UK institutions must provide ‘adequate information to their affected EU customers and clients regarding the availability of services following the end of the transition period’.   

The EBA issued its statement as the UK and EU negotiators appear to be at a deadlock with regards to agreeing the terms of its future trade arrangement, with the UK rejecting the EU demand of accepting terms on developing a ‘level playing field’ for its future trade.

UK Chief negotiator David Frost announced this week that the UK government was prepared to ‘accelerate discussions’, with the aim of securing a final trade arrangement by the end of October.

This June, in a meeting with UK financial services leaders, Bank of England governor Andrew Bailey reportedly told UK CEOs of banks and lending institutions ‘to accept and prepare for a Hard Brexit’.