The Impact of Brexit on Cross-Border Business of UK Credit Institutions and Investment Firms with German Clients

Abstract

The passporting framework currently offers UK institutions a cost-effective access to the EEA financial markets for their cross-border activities. After Brexit, this privileged access may cease to apply so that UK institutions will have to rearrange their approach to access the EEA financial markets. UK institutions that intend to offer services in Germany, will, in principle, be required to establish licensed subsidiaries in that country under the sole supervision of BaFin and/or the ECB. If UK institutions still want to apply the European passport, they would have to establish a new ‘EEA hub’ in another EEA country. They could also apply for a German national exemption from the license requirement and, subject to certain conditions, provide services on a cross-border basis to German clients.

As third-country firms, UK institutions might be granted a more comprehensive access to EEA markets under the MiFID II/MiFIR. It is, however, currently not an attractive option for UK institutions as it may take years before the European Commission will adopt an equivalence decision regarding the UK. Moreover, the equivalence regime is limited in scope, as it is only applicable with respect to investment services and activities to eligible counterparties and ‘per se’ professional clients.

Keywords: Brexit, Cross-Border Financial Regulation, Equivalence Regime, European Passport, Freedom to Provide Services, Freedom of Establishment, MiFID II, MiFIR, Reverse Solicitation

JEL Classification: G21, G24, K23, K33