Brexit & Equivalence for Payments and Electronic Money (emoney) - the facts

Some choice headlines in the papers about Brexit in the past week as we - according to Brexit Ireland's countdown to Brexit clock - just little more than 33 days before 11p.m. (UK time) on Thursday 31st December 2020 when the Brexit transition period ends with no deal on financial services in sight.

This week sees the EU negotiating team returning to London after face-to-face talks came to end more than a week ago after Mr Bariner's team was hit by a case of Covid.  They will be greeted by headiness such as: ​UK dismisses ‘derisory’ EU fishing offer ahead of last-ditch trade talks; 
Europe’s finance sector hits ‘peak uncertainty’ over Brexit; and The City braces for Brexit.

There is no equivalence regime provided for within either EMD2 (electronic money institutions) or PSD2 (payments services institutions)!

One thing we are still very surprised by is the many in #fintech, #techfin and indeed #finserv (and scarily their advisers) who think that recent news on 'equivalence' deals are applicable to all UK #finserv which passport across the European Union / EEA.

The announcement on Monday 23rd November by the European Commission was simply and specifically about European regulators finalising a late change seeking to avoid chaos in £15tn of derivatives contracts held between UK and EU counterparties. Then on Wednesday 25th, they insisted outposts of EU banks in London would have to trade certain derivatives in the EU.

Back in August 2020 the European Parliament reminded that "Equivalence decisions are a unilateral decision by the Commission. The Commission ultimately exercises its discretion as conferred upon it by the “empowerment” given in EU sectoral legislation.'' BUT MORE IMPORTANTLY "The Commission also enjoys discretion to withdraw equivalence decision. The equivalence frameworks in force do not provide as such specific procedures for monitoring, reviewing or amending equivalence decisions."

There are no equivalence provisions in EU bank, payments nor electronic money directives, and the equivalence provision in MiFiD doesn't apply to retail investment services. See the below table on the 'Role of equivalence in key EU banking and financial services legislation' for confirmation.

The upshot is that if you are a UK authorised payments institution or electronic money intuition, come Thursday 31st December 2020 when your ability to passport across the whole of European Economic Area comes to an end, so too does your business model unless you have obtained an authorisation in an EU/EEA state.  There are are other options available but we'll leave that for another article. 

​If you are a regulated fintech looking for a home post #brexit contact https://complireg.com/authorisations.html.  Read our Fintech Authorisation Guides published jointly by CompliReg and Fintech Ireland on the authorisation process.  And check out the 'Why Ireland for Fintech' brochure.

Why Ireland for your regulated fintech? 

• tax effectiveness
• common law legal system
• similarities to the UK in Irish approach to business
• access to world leading talent in financial services and technology
• reputation of the Central Bank / regulator 
• growing recognition of Ireland as an international fintech hub thanks to the work of the Irish government, its agencies and groups like Fintech Ireland. 

“From January 1st, EU rules will apply to UK firms wishing to operate in the EU. UK firms will lose their financial passport: it’ll be anything but business as usual for them. This means they will have to adhere to individual home-state rules in each and every member state,” the official said.

Further reading:

​26 November 2020 - Move to EU or face disruption, City of London is warned

• British financial firms must set up shop in the European Union or expect disruption on January 1st, the European Commission has warned, as it is unlikely to grant the required equivalency permit to ease access to the bloc’s customers by the end of the year.

27 August 2019 - "Third country equivalence in EU banking and financial regulation"

• This briefing provides an insight into the latest developments on equivalence in EU banking and financial regulation both in terms of governance and decision making (Section 1) and in terms of regulatory and supervisory frameworks that governs the access of third countries firms to the internal market (Section 2). The briefing also gives an overview on the possible role of equivalence regimes in the context of Brexit (Section 3) together with Brexit-related supervisory and regulatory issues (Section 4). This briefing is an updated version of a briefing published in April 2018. 

29 July 2019 - Financial services: Commission sets out its equivalence policy with non-EU countries

​12 July 2017 - "Third-country equivalence in EU banking legislation"

• This briefing focuses on the concept of equivalence in EU banking legislation and notably on the difference between “passporting” rights and “third-country equivalence” rights. It gives an overview of existing equivalence clauses in some key EU banking and financial legislation and of equivalence decisions adopted by the European Commission to date.