Banking and Payments

  • There are common EU rules in the area of banking and payment services. The EU directives on access to the activities of credit institutions and investment firms provide for common prudential standards and supervision. After 2020, UK entities providing banking and payments services and e-money issuing may no longer rely on their UK authorisation as a basis for providing those services and conducting those activities in the EU.
  • In the case of branches established in other EU states on the basis of UK home country supervision the EU rules applicable to third-country branches will apply. This requires authorisation by the competent authority of the host member state.
  • Entities authorised by authorities in the EU which have established branches in the UK are likely to be treated on a reciprocal basis.
  • Services covered by authorisation including those provided by branches in the third country are subject to the supervision of the competent authority granting the authorisation. This may include powers to restrict or limit business operations and to request a change in activities that are deemed to carry inappropriate risks.
  • An entity authorised in the EU must have a risk management and control framework with sufficient operational resilience in crisis which must be assessed by the competent authority which granted the authorisation. The assessment may be affected by post Brexit considerations such as the ability to rely on outsourcing, supervisory arrangements, exemptions from the application of large exposures and risk mitigation requirements involving counterparties in the United Kingdom.
  • Continuity of relationships may be affected by the loss of passport rights. There may be issues in terms of service continuity in relation to contracts in existence.

Investment Firms

  • UK investment firms will no longer qualify under MIFID to provide MiFID investment services in other EU states. Subsidiaries may continue to operate provided they have a MiFID authorisation issued by an EU member state. They must comply with prudential governance requirements of the EU state in question. The fact of Brexit may impact the assessment of ongoing prudential competence.
  • Branches of UK investment firms that may now be established on the basis of UK prudential regulation would be obliged to comply with the requirements of the relevant EU state in respect of third country (non-EU) branch requirements.
  • UK market operators and investment firms operating a trading venue may no longer use a MiFID authorisation. The UK based regulated markets multilateral trading facilities or systematic internalises will be similarly restricted. This may affect what trades that EU counterparties may undertake with them.
  • The loss of authorisation in itself may impact the relationship between EU clients and counterparties and UK firms in terms of ongoing contractual obligations.
  • Outsourcing of certain functions to UK providers will be permissible only in accordance with MiFID requirements. This may require Cooperation between competent national authorities and UK authorities. The European Securities and Markets Authority has issued opinions in relation to outsourcing arrangements and the use of non-EU branches for the performance of functions and services in relation to EU clients.
  • MIFID provides extensive obligations to keep clients appraised of matters relevant to the provision of investor services. This may require prior notification and consultation with clients in relation to issues arising from EU withdrawal.

EU Investment Funds

  • UK UCITS management companies and UK AIF managers will no longer be able to exercise passporting rights throughout the EU after Brexit in the absence of an alternative agreement or arrangement. They may not market funds and manage funds in the EU on the basis of their UK authorisation.
  • For UCITS, EU VECA  (European Venture Capital Funds) EUSEFs (European social entrepreneurship funds) and ELIFs(European long-term investment funds) the fund managers and investment funds must be established and registered or authorised in the EU to manage and market funds to retail and professional investors in the EU. AIF managers need to be established and authorised in the EU to manage and market AIFs to professional investors in the EU.
  • Member states may allow AIF managers who are not established and authorised in the EU to market AIF’s (EU AIF’s and non-EU AIF’s) only in their territory under the national private placement regime. States have discretion as to whether to activate NPPR and allow for stricter rules in addition to the minimum requirements in the directive. Some states do not allow for NPPR, and others allow marketing only to professional investors.
  • UCITS management companies or AIF managers authorised in the other EU states which are subsidiaries of entities established in the United Kingdom may continue to operate on the basis of their authorisation as a UCITS management company or AIF management company in the EU. Branches of UK managers will be treated as branches of non-EU AIF managers from Brexit and will be subject to the requirements for non-EU providers, where available
  • As and from the withdrawal date UCITS and AIFs authorised or registered in the United Kingdom will be non-EU AIFs. UCITS management companies managing those UCITS authorised in the UK will require an authorisation pursuant to the UCITS directive to manage non-EU AIFs.
  • The management by AIF managers established and authorised in the EU of non-EU AI’s that are not marketed in the EU must comply with the UCITS requirements and cooperation agreements for the exchange of information between EU competent authorities and third country competent authorities.
  • The marketing of non-EU AIFs managed by an AIF manager established and authorised/registered in the EU is subject to the NPPR where applicable. Stricter rules may be applied to this category of AIF managers by member states.
  • The withdrawal in itself may have implications in terms of investment strategy and obligations on managers and management companies to provide information to their investors.

Delegation of Functions

  • The delegation of certain operational functions to providers established in the UK may be undertaken provided the requirements of the UCITS Directive are complied with.
  • In particular where the delegation concerns portfolio management, risk management or investment management for UCITS and is conferred on an undertaking established outside the EU a cooperation agreement between the competent authority of the home state and the UCITS management company or AIF manager and supervisory authority for the undertaking must be in place
  • The European Securities and Markets Authority has issued an opinion with specific clarifications on the issues in particular in relation to the risk of letterbox entities which may arise from the use of outsourcing or from the use of non-EU branches for the performance of functions and services in relation to EU clients.
  • The use of non-EU branches needs to be based on objective reasons linked to the services provided in the non-EU jurisdiction and not result in a situation where the non-EU branches perform material functions or provide material services back into the EU.


  • The depository of the EU AIF and UCITS authorised in the EU must be located in the home member state of the fund. The legislation provides requirements for delegation of safekeeping  functions to third country parties.
  • There are requirements where safekeeping functions have been delegated to an entity established in the UK. In particular, repositories must demonstrate the objective requirement for delegation and ensure that in the event of the insolvency of that third party, that the assets held in custody are unavailable for distribution or realisation for the benefit of its creditors.
  • A non-EU AIF managed by an AIF manager established and authorised in the EU can appoint a depository in the third country of the non-AIF subject to requirements. The above is without prejudice to the third country passport regime in the AIM directive.
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