Preparing for a no-deal Brexit: Banking, insurance and other financial services

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On 23 August 2018, the UK Government began publishing technical notes on the effect of a no-deal Brexit. These notes are intended to provide guidance to citizens, businesses, public sector bodies and Non-Governmental Organisations in the United Kingdom on how to prepare for the possibility of the UK leaving the EU next March without concluding a Withdrawal Agreement. It is expected that around eighty technical notes will be published in total. Over the next two months SPICe Spotlight will provide analysis and comparative information on a number of these. The first blog provided an overview of the UK Government’s Preparations for a no-deal Brexit.

The initial batch of notes covers a range of issues, including a sector of particular importance to both the UK and Scottish economies – banking, insurance and other financial services. The Scottish financial services sector alone generates around £8 billion for the economy and employs almost 100,000 people directly.

Implications of no deal

The note details the immediate practical implications of a no-deal Brexit for the financial services sector, including:

  • UK and European Economic Area (EEA) firms defaulting to ‘third country’ status (i.e. not party to any trade agreement between the two sides) under each other’s regulatory regimes
  • UK-based payment services providers losing direct access to central payments infrastructure such as TARGET2 and the Single Euro Payments Area, likely resulting in customers facing increased costs and slower processing times for transactions in euro
  • the cost of credit and debit card payments between the UK and EU likely increasing and cross-border payments no longer being covered by the EU’s surcharging ban
  • UK banks and financial services firms losing access to the EU’s passporting system. Without agreement from the EU, customers of the affected firms who live in the EEA may not be able to access existing banking and insurance services. Implications of this could include:
    • UK firms unable to legally pay out personal pension or insurance contracts to customers living in the EEA – of particular concern to the approximately 247,000 Britons over the age of 65 living in other EU countries (excluding Ireland)
    • EEA-based clients being unable to use the services of UK-based investment banks, and UK financial services firms potentially being unable to meet existing contractual obligations to EEA-based clients
  • without EU agreement, significant disruption to EEA customers’ access to UK Financial Market Infrastructures, including central counterparties (CCPs), Central Securities Depositories, payment systems, settlement systems, trading venues or exchanges, Credit Rating Agencies and Trade Repositories

UK Government action

To mitigate some of the potential impacts, and maintain a functioning regulatory framework, the note makes clear that the UK Government will take unilateral measures where necessary to ensure as much continuity as possible for both UK and EEA firms. These measures will include:

  • a Temporary Permissions Regime that will allow EEA firms currently passporting into the UK to continue operating in the UK for up to three years after Brexit. Similar temporary regimes will be provided for EEA electronic money and payment institutions, registered account information service providers, and EEA funds that are marketed into the UK
  • a Temporary Recognition Regime for CCPs, allowing non-UK CCPs to provide clearing services to UK firms for a period of up to three years after Brexit
  • legislation to deliver transitional arrangements for non-UK Central Securities Depositories, Credit Rating Agencies, Trade Repositories, Data Reporting Service Providers, systems currently under the Settlement Finality Directive and depositaries for authorised funds
  • if necessary, further legislation to ensure that contractual obligations (such as under insurance contracts) between EEA firms and UK-based customers that are not covered by the temporary permissions regime can continue to be met

The note makes clear that, as things currently stand, when the UK leaves the EU on 29 March 2019, UK financial services firms will immediately find it more difficult and more expensive to operate in the EEA. The consequences of this may be less severe for many Scottish firms than their London based counterparts – the Scottish financial services sector is heavily focussed on the UK market, with exports to the EU worth just £0.4 billion in 2016, compared to £7.8 billion to the rest of the UK.

The note highlights that, by taking unilateral action, the UK Government can minimise some of the disruption facing the sector. This will not, however, fully address all of the risks associated with a no-deal Brexit. Significant action from the EU itself will also be essential, assuming it is willing.


On 23 August, Hugh Savill, Director of Regulation at the Association of British Insurers, said:

“Today’s paper emphasises the risk of insurers not being able to make payments to customers based in the EU after the end of March next year. Obviously, insurers want to meet their commitments to their customers, but this problem has the potential to affect millions of insurance customers, including UK pensioners overseas. It can be fixed by co-operation between the UK and EU regulators – if the EU authorities wish to do so.”

Also on 23 August, Simon Lewis, Chief Executive of the Association for Financial Markets in Europe said:

“The consequences of a no-deal Brexit scenario could mean prolonged disruption to the smooth functioning of Europe’s capital markets, which would affect investors, borrowers and savers across Europe and beyond. The financial services industry is keen to see both negotiating parties agree on a deal which locks in an agreement on a transition period and the future trading relationship in order to minimise the risks to financial stability.”

Adam Marshall, Director General of the British Chambers of Commerce, said:

“There are some alarm bells for business here, far beyond the headline-grabbing questions about the City and passporting. The government is saying that firms could face higher costs and slower processing for their Euro transactions in a no deal scenario, and that surcharges for card payments could make a comeback. Both of these real-world business issues need to be avoided if at all possible.”

Andrew Warden, SPICe Research