Brexit: What does this mean for UK FinTech?

Transcription

1 Brexit: What does this mean for UK FinTech? August 2016

2 2 Hogan Lovells Brexit: What does this mean for UK FinTech? Since the referendum on the 23 June returned a majority vote to leave the EU, there has been a huge amount of speculation about what that will mean for the UK s Financial Services sector. The vote, of itself, does not have any legal effect so the UK s regulatory regime will continue to match the rest of the EU, including complying with new regulations, until Brexit takes effect. Current expectations are that Brexit will not happen before the beginning of Much of the discussion on the impact of Brexit on financial services has focused on the on-going ability of UK firms to take advantage of a cross-border regime and the possible loss of its current passporting rights. Passporting is often used as an umbrella term to mean the access rights which a business based in one country in the EU/EEA has to export financial services or products into another country in the EU/ EEA. The concern is that if the UK ceases to be in the EU/EEA it will lose the ability to use those access rights. Before Brexit happens, the UK will be seeking to negotiate an arrangement with the EU under which passporting rights, or something similar, continues to be available so the issue may be solved that way. If these negotiations are not successful, there are other options to consider. However, whether a potential loss of passporting is even likely to be an issue for FinTech firms starting or scaling up in the UK depends on a number of issues such as whether your firm is currently regulated, whether your activities include exporting financial services or products to another EU/EEA country, and whether those activities are covered by a Directive which includes passporting rights. Our FinTech Brexit impact tool below has been designed to help you navigate those issues. The FinTech Brexit impact tool walks you through the questions you need ask about your business and sets out some initial actions you may want to take. The FinTech Directives table (set out on page 5) helps you work out whether your business is covered by a European Directive and whether that Directive includes passporting. You can also use the FinTech Brexit impact tool to assess if these issues may impact your competitors, clients and regulated counterparties. When using the FinTech Brexit impact tool it is necessary to know that the Directives that include passporting rights are referred to as the Single Market Directives. You can refer to the FinTech Directives table below to check whether your business conducts activities that might be covered by one of the Single Market Directives.

3 Brexit: What does this mean for UK FinTech August FinTech Brexit impact tool Are you a regulated business in the UK? Y N Y Do you conduct activities covered by a FinTech Directive? Do you currently conduct regulated activities in the EU? N Do you have plans to expand into the EU? Your position is unlikely to be directly affected by any changes to the current regulatory regime. Action: You should continue to monitor developments as any changes may affect your customers or competitors. You should also consider whether any key contracts with financial institutions require you to implement changes to your systems and processes as a result of regulatory change. You should also monitor changes to the EU legislation which currently covers your business in the UK. Y N Y Action: Review the FinTech Directives table (on page 5) to see what options may be available if the UK is no longer part of the single market. This varies depending on your business and the relevant directive. You may be able to use the third country regime or may need to establish or collaborate with a regulated company in the EU. N Passporting is not currently available and a loss of single market access would not affect this. Action: However, you need to continue to monitor developments to assess the impact on legislation derived from the EU that currently covers your business. The discussions relating to passporting are not directly relevant to your business Action: You need to monitor developments to access the impact on legislation derived from the EU that currently covers your UK business. Action: Please refer to the FinTech Directives table on page 5.

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5 Brexit: What does this mean for UK FinTech August Brexit: FinTech Directives Table Unpicking the impact of European legislation on the UK financial services sector is a complicated task because UK law implements EU Directives, but EU policy in this area has often been informed by existing UK laws. At this stage it is unclear where UK financial services regulation will end up, if and when the UK leaves the EU. The table below looks at one key impact of the EU legislation whether it covers the authorization of your business and whether the Directive is a Single Market Directive which therefore includes passporting rights. Other European Directives may impact the conduct of your business but changes to those Directives are unlikely to affect the structure of your business. Type of activity Key directives which may impact the authorization of your activity 1 Is this a Passporting Directive which will therefore include passporting rights? Automated investment advice and portfolio management MiFID MiFID 2 (not yet implemented) Automated mortgage brokerage Not covered by EU Directives n/a Enterprise software Not covered by EU Directives n/a Equity-based crowdfunding MiFID MiFID 2 (not yet implemented in the UK) Peer-to-peer lending platforms Not covered by EU Directives n/a Salary finance Not covered by EU Directives n/a Insurance comparison and brokerage platforms Non- advised investment platforms Investment research platforms Payment providers Insurance Mediation Directive Insurance Distribution Directive (not yet implemented) MiFID MiFID 2 (not yet implemented in the UK) MiFID MiFID 2 (not yet implemented in the UK) Payment Services Directive Payment Services Directive 2 (not yet implemented in the UK) SME alternative finance providers Not covered by EU Directives n/a Personal Finance Management Payment Services Directive 2 (not yet implemented) Virtual currencies and blockchain Not covered by EU Directives n/a Challenger banks CRD IV MiFID / MiFID 2 (for investment services) 1 How your business interacts with European legislation is likely to depend on the way in which your business is constructed. Many innovative FinTech firms combine a number of traditional elements and therefore the regulatory treatment for each business is likely to differ. This is a summary only and is non-exhaustive list of business activities which may be affected. This table should be used as a guide only and not relied upon. Legal advice should be sought before any steps are taken or not taken on the basis of it.

6 6 Hogan Lovells Contacts Rachel Kent Global Head of Financial Institutions Partner, London T rachel.kent@hoganlovells.com Emily Reid Head of Commercial and Retail Banking Partner, London T emily.reid@hoganlovells.com For more information, contact our Brexit team members in the UK, EU and beyond using the details here, or via FISBrexit@hoganlovells.com Follow us on Join in the conversation #Brexiteffect Jennifer Steven Director of Financial Services Regulatory Consulting, London T jennifer.steven@hoganlovells.com

7 Brexit: What does this mean for UK FinTech August Notes

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