As I write this there is still no final deal announced with the EU. That makes it particularly tough, for those of us in finance, to plan for 2021. To help SMEs we’ve just published a report The Brexit Brink: Are British SMEs about to fall off the edge of Europe – or building new bridges? This summarises some of the key concerns for our sector.
The main issue, that has been largely overlooked in the talks, is the fact that British banks, payment and electronic money institutions, insurance companies and investment firms stand to lose the “passporting” rights that have allowed them to sell funds, debt, advice or insurance across the EU. The EU equivalent won’t be operational until at least June 2021 because Europe doesn’t have the legal structure to do it.
Some in the sector have moved staff and assets to Europe to overcome this, but as the sector represents 12% of national GDP, I would have hoped it would have been given more priority.
One way of overcoming the legal challenge is to choose duplicate authorisations. Consequently, the larger companies have been throwing millions at duplicating their regulatory and technology infrastructures to prepare for whatever happens. But because of the costs and complexity, this is not affordable for smaller companies.
What are the main regulatory changes affecting financial services?
- Reporting: Brexit changes financial reporting requirements for many UK businesses, and after 1 January companies that currently adopt the EU-endorsed International Financial Reporting Standards (IFRS) will have to use UK-adopted international accounting standards (IAS) instead of EU-adopted IAS.
- Auditing: according to the Institute of Chartered Accountants in England and Wales (ICAEW), Brexit also has implications for a variety of auditing standards relevant to smaller companies.
- Professional qualifications: the end of the transition also affects the recognition of professional qualifications, which may have implications for UK staff who have to work cross-border in EU member states.
- Employing EU citizens: from 1 January, EU citizens moving to the UK to work will need a visa which requires them to show they have a job offer from an approved employer sponsor. That means a business that recruits from the EU needs to apply to become an approved sponsor. As of the end of the transition period, Existing EU, EEA or Swiss citizens working in the UK will need to apply to the EU Settlement Scheme by 30 June 2021.
- Insurance: the end of the transition will have an impact on insurance requirements and arrangements for companies whose employees have to travel in Europe for business purposes. British drivers, for example, may be required to carry an EU “Green Card” to take to the road within and in some countries may also need an international driving permit (IDP). From January, the European Health Insurance Card (EHIC) will no longer cover UK citizens for healthcare in the EU and EEA and they will need to take out travel insurance to cover them for medical care abroad. A business policy held with an EU insurer should not be affected when the transition ends, but UK insurers without EU-registered offices will no longer be able to cover policies within the EU until individual deals are reached with member states.
There is no doubt that the business models of UK financial services companies will change as a result of Brexit as many choose to focus attention on the Far East, South Asia, South America and Africa. I’m hopeful that the UK regulator will adopt an accommodating position after 1 January to enable financial services companies to adapt to the new European landscape. It is going to be a steep learning curve. But we’re good at that!
~Novel Serialisation: Heavens Fire~
By Steve Taklalsingh, MD UK Business, Amaiz
Steve Taklalsingh is a qualified chartered accountant and has served as director of multiple regulated and non-regulated entities in Europe and Asia. He has also served as Global CFO, including CLSA and the Vector Scorecard Group.
