Payment passporting extended under no-deal Brexit
Written by Hannah McGrath
Electronic money and payment institutions from the European Economic Area (EEA) will be able to continue passporting into the UK for three years under government plans for a no-deal Brexit.
In a paper published yesterday - one of 25 technical notices of a total of 80 due to be released in the coming month - the government set out plans for dealing with the consequences for financial services and cross border contractual arrangements if the UK exits the EU without a negotiated deal on 29 March 2019.
The paper outlines the government’s commitment to offer financial services firms based in EU countries which are currently ‘passporting’ into UK markets the chance to operate under a temporary arrangement known as a Temporary Permissions Regime (TPR) for a period of three years following the day of exit.
The regime is intended to shield key EU financial institutions operating in the UK and UK firms trading with the EU from the shock of crashing out of the EU onto World Trade Organisation terms in the event of a no-deal.
It will offer firms a guaranteed period of stability where they can continue to service EU clients while they apply for authorisation from UK regulators and will enable them to continue marketing into the EU.
The FCA set out its guidance for businesses on the scope and rules of TPR when the government published draft legislation for its implementation earlier this year.
However, the technical notice published yesterday reveals the government is now planning to extend similar continued passporting rights to electronic money and payment institutions such as Transferwise and Stripe.
The document states “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 spokesman for UK finance said: “Ensuring that a temporary permissions regime is in place so that firms operating in the UK can continue to serve their customers is a pragmatic step. These firms are significant contributors to our economy."
The spokesman also echoed suggestions from the UK side that EU regulators needed to offer reciprocal terms and exceptions as part of co-ordinated efforts to avoid disruption.
“The impetus is now on EU regulators to follow suit, and for both sides to work together on cross-border models of cooperative regulation and supervision that businesses and customers on both sides of the Channel can rely upon, ” they said.
In one of the most controversial warnings contained in the financial services document, ministers also warned of a “likely increase” on the cost of card payments between the UK and the EU as a result of a disorderly exit.
In this scenario, payment services providers including retail banks and payment forms could crash out of central payments systems Target2 and the Single Euro Payments Area (SEPA) and an EU-imposed ban on extra card charges would no longer apply, sparking fears of increased costs for online shoppers buying from firms on the continent and holidaymakers.
In a speech made to business groups yesterday, Brexit minister Dominic Raab said that the government is not expecting a no deal Brexit and insisted a good deal was “within our sights”.
But he also noted that the government had a responsibility to prepare for a scenario where negotiations fail, stating that the guidance set out in the technical note was “practical and proportionate” to the regulatory changes and challenges firms would face.
Ministers pledged to table legislation that would provide stability for financial contracts that fall outside of the scope of TPR, an issue which has previously been flagged as a major concern by the Bank of England.