Less than a month before the United Kingdom is due to leave. The European Union, the exact conditions prevailing the day after are not yet known and the possibility of a nodeal exit is still very real. This would mean that on day 1 after its departure, the UK would become a third country like the United States, Switzerland or Japan. However, these countries have over the years either entered into various bilateral agreements with the EU on various subjects or been recognised as applying regulation deemed equivalent to that of the EU itself for certain activities. In the case of a nodeal scenario, the UK would have no such cushion to fall on immediately.
Financial firms have over the last 46 years built very deep and integrated business ties throughout the EU Single Market, including the British Isles, that will be very complex to sever. According to Isabelle Goubin, Director of the Treasury at Luxembourg Ministry of Finance, “Luxembourg’s government has been preparing legislation that aims to mitigate the most disruptive consequences of a hard Brexit scenario.”
Isabelle Goubin
Mrs Goubin explains that “after months of exchanges with the industry, directly or via consultation with the industry associations in the Haut Comité de la Place Financière, a public private think tank/platform gathering the main actors of the financial centre, the Luxembourg government has tabled at the end of January a draft law that aims to ensure financial stability and depositors and investor protection in case of a hard Brexit.” The draft law is expected to be adopted before March 29th.
All of us have a responsibility to prepare for the worst in order to preserve financial stability and protect depositors and investors.
She sums up the main gist of this legislation by explaining “the primary purpose of this draft bill is to grant supervisory authorities, the Commission de Surveillance du secteur financier and the Commissariat aux assurances, the necessary powers to ensure an orderly transition by ‘grandfathering’ existing contracts on a temporary basis under certain conditions.”
This law will empower the Commission de Surveillance du secteur financier to authorise for instance UK based payment institutions which currently operate in Luxembourg via a branch or by providing services to continue doing so for up to 21 months.
Furthermore, Mrs Goubin underlines that “This law will empower the Commission de Surveillance du secteur financier to authorise for instance UK based payment institutions which currently operate in Luxembourg via a branch or by providing services to continue doing so for up to 21 months.
The same transition period of up to 21 months might be applicable to UK based banks or management companies which currently operate in Luxembourg via a branch or by providing services. Similarly the Commissariat aux Assurances will be empowered to authorise UK based insurance companies to continue to operate in Luxembourg for a limited period of up to 21 months after 29th of March.”
Other Member States of the EU, such as France and Germany have engaged in similar legislative action.
“All of us have a responsibility to prepare for the worst in order to preserve financial stability and protect depositors and investors,” comments Isabelle Goubin, “all the while we of course hope for the best.”