The government’s recently published planning papers confirmed that in the event of a ”no deal”exit from the EU, EU firms operating in the UK on the basis of a single market passport will be able to continue to do so for a transitional period of three years.
Unfortunately, no such clarity exists for UK firms currently benefiting from the same rights, allowing them to provide cross-border services to clients in the EU.
It’s still possible that this will be clarified in the remaining time to the end of March 2019, when the UK is set to leave the EU. But the rights of financial services firms are unlikely to be high up the government’s negotiating agenda.
So UK firms with EU clients should be considering their position, against the event that no agreement is reached. Firms with EU clients will be in a position of uncertainty as the legal basis on which they provided services to EU clients is likely to disappear.
The situation is the same – if not more so – for firms with EU clients who have never applied for a passport, on the grounds that the service they provide does not take place in the EU, but in the UK.
Both those with and without passports are now waiting for the EU – and perhaps the member states individually – to decide how they will treat UK firms. At the worst complexion, member states may decide that any approach to an EU resident can only come from an EU authorised firm. Hitherto, UK firms that held passports were EU authorised firms. And whilst the UK was a member of the EU, an aggressive approach against UK firms who did not hold passports but who did have EU clients was unlikely.
That certainty – such as it was – no longer exists. UK firms with EU clients have little choice but to sit tight and wait and see what the outcome will be. There are some preventative steps that can be taken: identifying those EU clients is a first step. Transferring these clients to an EU authorised firm is another obvious (if unwelcome) solution. Firms should also review their contracts to see whether any force majeure clauses are triggered by if the performance of the contract becomes illegal.
The Death of Culture?
We wrote in our June newsletter (here) about FCA’s focus on firm culture, and in the May issue of Compliance Monitor (here) about FCA’s Discussion Paper 18/2 of March (”Transforming Culture in Financial Services”).
Since then, it’s all gone quiet on the cultural front. It hardly got any air time at the FCA’s Annual Meeting last month. The FCA’s Annual Plan for 2018/19 largely confines cultural references to the extension of the Senior Managers & Certification Regime in December 2019. There’s no wider reference to the changes showcased in DP 18/2.
How come? Has this wider issue has been pushed into the long grass? Or does FCA believe that all it needs to do on this front is push ahead with SMCR?
In this regard, the fate of Paul Pester, until recently CEO of TSB, is instructive. TSB’s remuneration practices were highlighted by FCA in DP 18/2 as at least worthy of consideration, if not emulation. We wrote in Compliance Monitor that ”…the changes [in remuneration practice that] TSB have trumpeted didn’t help them avoid a major IT meltdown this April when their mobile and online services failed. Will the efforts TSB have made to pick up the regulator’s cultural agenda help them avoid a fine?”
PRA and FCA’s investigations into TSB are ongoing, but speaking to the Treasury Select Committee on 4 September, Bank of England Governor Mark Carney attributed Pester’s resignation directly to SMCR. ”Responsibility has now been taken by the CEO for a series of quite fundamental failings,” he told the committee.
Which leads us to the conclusion that culture is not about remuneration, or assessment or any of these single metrics. Culture is about what customers experience. And in the case of TSB, their experience was bad, irrespective of the reforms TSB had made. And so Pester had to go.