If it comes to a “no-deal” Brexit, UK financial market firms will be given transition periods
On 5 March 2019, a legislative proposal was submitted to the Sejm to regulate business activity conducted from the United Kingdom of Great Britain and Northern Ireland and Gibraltar following Brexit. Similar laws are now being drawn up in a number of other EU countries. The bill is intended to protect Polish customers who have agreements with institutions of that kind. It is also intended to enable the firms to bring their business activities and relationships with customers to a close in an orderly fashion, or take the appropriate measures to remain on the Polish market according to rules that apply to third countries.
Entities on the capital market have been waiting for this legislation for a long time. If a measure of this kind was not adopted, UK financial market firms would lose the right to operate in Poland overnight in the event of a no-deal Brexit.
The institutions for which the bill provides transition periods are, in the UK:
- payment institutions,
- e-money institutions,
- firms solely providing access to information about an account, performing payment services or issuing and buying back e-money in Poland,
- firms operating as a participant or indirect participant in payment systems and securities clearance systems,
- insurance and reinsurance companies,
- investment firms and open-end investment funds or specialist open-end investment funds that apply the rules and restrictions of an open-end investment fund, investing their assets in UK securities and money market instruments, and that have agreements concerning UK derivative instruments.
The option of a transition period will also be available for banks and credit unions that have agreements with businesses based in the UK on outsourcing banking activities, under which the outsourced activities are or will be performed in the UK, Northern Ireland, and Gibraltar.
Transition periods: between 6 and 24 months
The longest transition period has been provided for UK banks, reinsurance companies and life insurance companies.
UK banks will be able to continue to perform credit facility agreements concluded prior to Brexit until those agreements expire, the credit portfolio provided for in the agreements is transferred to a domestic bank, a branch of a foreign bank, or a credit institution, a permit is obtained for operations of that kind in Poland in the form of a branch of a foreign bank, or a bank is set up in the form of a “spółka akcyjna”. This will be possible for no longer than 24 months from the moment the proposed bill comes into force. During this time, a bank will be authorised to enter into new credit facility agreements, renew existing ones, increase the amount of funds made available, and amend agreements in other ways to increase the level of the bank’s risk.
The same period is envisaged for insurance companies and life insurance companies. For agreements concerning other personal and property insurance products, the transition period will be 12 months. During these periods, insurance companies will not be able to enter into new insurance agreements, renew the existing ones, expand risk coverage under the existing agreements, increase the sum insured provided for in existing agreements, or make other amendments increasing the company’s liability.
Reinsurance activity will continue to be subject to provisions applicable to activity of this kind performed by a company in a different member state, but for no more than 24 months from the moment the planned legislation comes into force.
UK payment institutions, e-money institutions, or firms solely providing access to information about an account, performing payment services or issuing and buying back e-money in Poland, and participants and indirect participants, will have 12 months to adapt their activities in Poland to the new situation or close down their operations.
The same period will apply when continuing to perform agreements for brokerage activities concluded by UK investment firms before the legislation comes into force. It will not be possible to enter into new agreements and renew existing agreements.
Banks and credit unions that have concluded agreements with UK businesses for outsourcing banking activities, under which the outsourced activities are or will be performed in the UK, Northern Ireland, and Gibraltar, will have one year to make the relevant decisions.
Open-end investment funds or specialist open-end investment funds that apply the rules and restrictions of an open-end investment fund will have the shortest time, of only six months. If they wish to continue to invest their assets in UK securities and money market instruments, and conclude agreements concerning UK derivative instruments, they will need to amend their statutes accordingly within six months. Financial Supervision Authority (KNF) approval will not be needed to make those changes to statutes.
It is certain that the bill will be welcomed with relief by the firms covered by the legislation. Recently they have been gravely concerned about the uncertainty of their situation on the Polish financial market. If this bill comes into force, they will have additional time to organise their affairs, make the appropriate decisions, and take the appropriate measures to ensure that they can continue to operate in Poland. Under the proposal, the law would take effect on 30 March 2019.
Monika Lutomirska, M&A and Corporate Practice, Wardyński & Partners