The UK's legal and regulatory framework for financial services draws heavily on EU wide rules. During the one year transition period the rules and regulatory framework continue to apply. Following the transition period those rules which derive from EU law will continue to apply as UK law. The domestic operations of UK financial services businesses will largely continue as before.
However, for businesses which provide financial services across EEA borders there is likely to be a significant impact - as rights to passport services to and from the UK will be lost. Firms in the UK may lose access to EAA markets and EAA firms may lose access to UK markets.
It remains unclear whether the UK and EU can agree free trade arrangements to mitigate or avoid this loss of access. In the absence of any agreement EEA firms seeking to undertake business in the UK may need to relocate some or all of their business to the UK. This may involve the establishment of a branch or subsidiary in the UK. Similar considerations apply to UK firms that wish to do business in the EEA.
For EU firms wanting to continue to undertake business in the UK, the UK will put in place a temporary permissions regime which will allow inbound firms to continue operating in the UK within the scope of their current permissions for a limited period (up to three years) while seeking full UK authorisation if necessary.
Whilst the impact is greatest on cross-border financial services business, the customers of such businesses will also be affected. Customers may no longer be able to access the services of their preferred suppliers. Where existing contracts are in place which are dependent upon an assumption that the UK remains a member of the EU (with associated rights and obligations) it may no longer be possible for the contracts to be performed. Businesses will need to consider whether such contracts can be transferred, restructured or terminated.