EUROPE: Withdrawal of the UK and EU Rules – Markets in Financial Instruments

The European Commission published a notice to stakeholders regarding the withdrawal of the UK and EU rules in the field of markets in financial instruments.

Since 1 February 2020, the United Kingdom has withdrawn from the European Union and has become a “third country”. The Withdrawal Agreement provides for a transition period ending on 31 December 2020. Until that date, EU law in its entirety applies to and in the United Kingdom.

Investment firms are advised to carefully assess the consequences of the end of the transition period and take appropriate action, such as ensuring that the necessary authorisations are in place, and that the necessary actions for any relocation, corporate reorganisation or contractual adaptations have been taken.

At the end of the transition period, entities established and authorised by United Kingdom competent authorities (hereafter “UK investment firms”) will no longer benefit from the MiFID authorisation to provide MiFID investment services and activities in the Union (they will lose the so-called “EU passport”) and will become third-country firms. This means that those investment firms will no longer be allowed to provide services in the EU on the basis of their current authorisations.

EU subsidiaries (legally independent companies established in the EU and controlled by or affiliated to firms established or authorised in the United Kingdom) can continue to operate as EU investment firms if they have obtained a MiFID authorisation in one of the EU Member States. These firms, like any other authorised EU MiFID firm, have to comply with MiFID requirements amongst others in terms of substance requirements (including governance, outsourcing or the use of branches in a third-country to provide services back in the EU). Such firm’s business model and structure (including links with non-EU entities) will be part of the assessment of the relevant MiFID competent authorities (e.g. qualifying shareholders, the group business model/structure, the potential (prudential) consolidated supervision or lack thereof, etc.).

Branches in the EU of UK investment firms will become branches of third-country investment firms and will need to comply with national requirements applicable in the Member State where the branch is established or with the regime set in Article 39-41 MiFID II where applicable. The provision of services/activities is limited to that Member State’s territory.