What would a no-deal Brexit mean for banks?
In December 2018 the European Commission declared that, with 100 days to go to the scheduled date of Brexit on 29 March 2019, it was "essential and urgent" to act to ensure that necessary contingency measures were in place to "limit the most significant damage" caused by a potential no-deal scenario (a so-called 'hard Brexit').
In line with the above, on 24 January 2019 the Ministry of Economy and Finance published a press release announcing the measures which the Italian government, in close consultation with the regulatory authorities and following discussions with trade associations, intends to take in order to avoid a hard Brexit having a cliff-edge effect on financial activities.(1)
As from 30 March 2019, under such a scenario and with respect to the European Union, the United Kingdom will become a so-called 'third country', resulting in the discontinuation of bilateral relations with the European Union.
The Ministry of Economy and Finance's national measures aim to ensure the financial stability, integrity and operational continuity of UK and Italian markets and intermediaries.
In particular, the transitional measures will be adopted in order to protect depositors, investors and customers in general through the introduction of an appropriate transitional period in which such entities may continue to operate, similar to the transitional period planned in the event of an agreement between the United Kingdom and the European Union. In fact, according to the Ministry of Economy and Finance's press release, the transitional period should be analogous to that provided in the draft withdrawal agreement between the United Kingdom and the European Union published in November 2018.(2) Therefore, it may be expected that the transitional period will last for 21 months (ie, at least until the end of 2020), although this was not specified in the press release.
The proposed temporary measures will be introduced through an emergency governmental law decree, the adoption of which remains subject to future Brexit developments and will be fully effective in the event of a hard Brexit.
The decree will need to be converted into law by the Italian Parliament within 60 days of its publication, otherwise it will become retroactively ineffective. Consequently, there may be further amendments introduced by Parliament, as well as legal uncertainty arising from the albeit unlikely possibility that the decree is not converted into law.
In this respect, it is not currently possible to assess the decree's potential impact because no draft decree has been made available. However, based on the press release:
the date of issuance of the law-decree will depend on forthcoming developments and the consequent decisions to be adopted in the United Kingdom with regard to the withdrawal from the European Union. In any event, the decree will be adopted with sufficient time to allow for the orderly execution of the activities and to provide a stable and certain regulatory framework within which intermediaries may operate, including in the case of withdrawal without an agreement.
During the aforementioned transitional period provided by the temporary measures, banking intermediaries (including those which provide supplementary pensions), among other entities, will be able to continue to operate according to existing laws and regulations.
The draft's provisions will be differentiated according to the nature of the intermediaries involved and considering the applicable EU and national laws and regulations. The protection of intermediaries' depositors and investors will also be guaranteed on a continuous basis throughout the transitional period.
Therefore, such measures will enable intermediaries to continue operating lawfully for a transitional period under the pre-Brexit EU licences in order to:
- prevent any business disruption; and
- safeguard investors' and depositors' protection.
The press release asserts that the decree's exceptional measures are exclusively aimed at avoiding discontinuity in the exercise of activities subject to regulatory licensing and restrictions at the national level and in accordance with the relevant EU harmonised regulations. As a result, during the transitional period, financial institutions will be able to continue business operations under the current regulatory framework. This regime will apply to both UK entities operating in Italy and Italian entities operating in the United Kingdom (as far as the Italian rules are concerned in the latter case).
In light of the above and based on the press release, the decree will identify the obligations, requirements and procedural steps that various types of intermediary will have to comply with – based on applicable sector legislation – in order to:
- continue operating beyond the defined transitional period; and
- ensure stable and certain parameters to allow each intermediary to gradually adapt to the new institutional and operational framework.
The press release also clarifies that similar provisions will be included in the part of the decree concerning trading venues and intermediaries' access to those venues. Further, the transitional period provisions will apply to both UK entities managing trading platforms operating in Italy and Italian companies managing trading platforms operating in the United Kingdom.
For further information on this topic please contact Marco Penna at Legance Avvocati Associati by telephone (+39 02 89 63 071) or email ([email protected] ). The Legance Avvocati Associati website can be accessed at www.legance.com.
Endnotes
(1) Bank of Italy, "BREXIT: The Ministry of Economy and Finance announces transition measure in the event of no deal", published on 24 January 2019.
(2) "Draft Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community", published on 14 November 2018.
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