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FINANCIAL SERVICES

With a Withdrawal Agreement

What financial services may be affected?

Banking, insurance or securities services provided by British institutions in the European Union or EU institutions in the UK.

What system has been established for the financial sector during the transition period?

The Withdrawal Agreement includes a transition period lasting until 31 December 2020 (it may be extended by one or two years), during which EU law will continue to be applied with respect to the UK. During this stage the cross-border provision of financial services with the UK will be guaranteed.

What will happen with respect to the financial sector once the transition period has ended?

Following the transition period, the plan is to apply the EU and legal regime governing third countries to the UK. This regime allows for the recognition of equivalence in certain financial sub-sectors. Equivalence would allow British operators to maintain access to the European market.

In the Political Declaration annexed to the Withdrawal Agreement, the UK and the EU have undertaken to make their own assessments of equivalence before June 2020.

The Framework on Future Relations, which is still pending negotiation, includes a chapter on financial services that establishes conditions for accessing markets and specific aspects on financial regulation.

Can new financial services be arranged with British institutions?

Yes. During the transition period, British financial institutions that provide services in the EU may continue to operate under the same conditions as until now. After the transition period, British institutions must request authorisation to create a Spanish institution or adapt to requirements for third countries. Bank of Spain, CNMV and the Directorate-General for Insurance and Pension Funds will advise institutions on this process.

Will Spanish financial institutions be able to continue to provide financial services in the UK?

Yes: during the transition period, just as they have done so far. After this, Spanish institutions that want to maintain their activity in the UK will have to adapt to the conditions set by British law for third countries.

Will contracts concluded with British counterparties continue in force?

Yes. The validity of contracts entered into with British counterparties will not be affected by Brexit, regardless of whether or not there is an agreement. The contracting parties will continue to be bound by the obligations arising from these contracts. However, in some cases this involves the need for institutions domiciled in the UK to obtain authorisation for setting up a Spanish institution or acting under the regime governing third countries before the conclusion of the transition period.

What must I do if I have entered into a contract with a British counterparty?

Ask for more information at the bank with which you have concluded the contract.

Financial services clients who bought a product from an institution domiciled in the UK with a maturity after 31 December 2020 must find out about the British institution's plans to continue its activity in Spain following the transition period. The entity providing the service must inform the client and take any adaptation measures required. Similar guidelines apply to contracts between clients resident in the UK and institutions domiciled in the EU.

What happens if my British insurer tells me that it has decided to transfer my insurance contract to another institution that can operate in Spain?

The institution must tell you individually of the rights you have in these cases to terminate the insurance contract and to receive the return of the proportional part of the premium payment remaining until the insurance expiry date. The institution will not cover you for the period lasting from when you exercise the right to terminate the insurance contract until the time when the insurance expires.

The institution's practice is correct in this case. The institution may transfer your policy to another institution so that you are not left without coverage when the insurance expires. This transfer will be overseen by the corresponding authorities. Approval from the Directorate-General for Insurance and Pension Funds will be required before the transfer of the policy to another institution can be carried out.

What requirements are applied to British insurance companies for assigning their portfolio to a subsidiary in the European Union?

Without prejudice to the provisions of UK law governing portfolio transfers, an additional guarantee has been established by which the Directorate-General for Insurance and Pension Funds must give its approval for the transfer of the portfolio to another Member State when Spain is the Member State of the commitment or in which the risk is situated.

 

Without a Withdrawal Agreement

What financial services may be affected?

Banking, insurance or securities services provided by British institutions in the European Union or EU institutions in the UK.

Which Spanish authority supervises each sector?

The financial entities that provide these services are supervised in Spain by Bank of Spain / ECB (credit entities, payment and e-money institutions), by CNMV (investment firms, venture capital management companies and fund managers) or by the Directorate-General for Insurance and Pension Funds (insurance companies, insurance intermediaries and pension fund managers).

What system has been established for the financial sector in case of an exit without an agreement?

The regime governing third parties will be applied, as included in EU and Spanish law.

Initially, only the equivalence of Central Counterparties and the Central Security Depositories will be recognised. The equivalence framework will not be applicable to other chapters of financial legislation.

What is the European Commission's contingency plan for the financial sector?

The European Commission has approved four contingency measures for the financial sector in case of a lack of agreement:

  • Two decisions of temporary and conditional equivalence for the Central Counterparties and the Central Securities Depositories. The period of application will be 12 and 24 months, respectively.
  • Two temporary exemptions for 12 months from compensation and collateral obligations for relocating over-the-counter (OTC) derivatives (i.e. derivatives not traded on organised markets) from the UK to the EU.

These measures affect only specialist operators.

For more information

Can new financial services be arranged with British institutions?

Yes, but not in the same way as before.

The law on provision of services by third-country institutions is different depending on the type of financial activity. We recommend you consult the specific regulations through the supervisory bodies for each activity (Bank of Spain, CNMV or the Directorate-General for Insurance and Pension Funds).

Loss of the "EU passport" means that for the UK financial institutions to continue their activity in the EU market, they will have to adapt their group structure and/or request authorisation to set up a Spanish institution or act under the regime governing third countries.

Will Spanish financial institutions be able to continue to provide services in the UK?

In theory, yes, but it depends on the British government.

It should be borne in mind that after its exit from the EU, the UK may introduce additional requirements for third-country providers and make regulatory changes affecting the financial sector. In addition, the subsidiaries or branches of European institutions must in turn continue to comply with EU regulations. This involves also guaranteeing that compliance with UK law does not interfere with or obstruct the exercise of supervisory functions by the competent authority of its country of origin.

The EU passport system for financial services will no longer be valid in the UK. Continued activity in the UK would initially be covered by the Temporary Authorisation Scheme, even in the case of an exit without agreement. The British Government plans to grant temporary authorisation of three years allowing EU financial institutions to continue to operate while adapting their group structure and obtaining permanent authorisations and recognition from British regulators.

What has to be done to become part of the temporary regime?

To be part of the transitional regime, financial institutions will have to notify the British authorities of their intention to participate before the withdrawal date; or have requested in advance the procedure for definitive authorisation.

Will contracts concluded with British counterparties continue in force?

Yes.The validity of contracts entered into with British counterparties will not be affected by Brexit, regardless of whether or not there is an agreement. The contracting parties will continue to be bound by the obligations arising from these contracts. However, in some cases this involves the need for institutions domiciled in the UK to obtain authorisation for setting up a Spanish institution or acting under the regime governing third countries before the conclusion of the transition period.

What must I do if I have concluded a contract with a British counterparty?

Ask for more information at the bank with which I have concluded the contract.

Financial services customers who bought a product from an institution domiciled in the UK with a maturity after the withdrawal date must find out about the British institution's plans for continuing its activity in Spain following the UK's exit. The entity providing the service must inform the client and take the preparatory measures needed. Similar guidelines apply to contracts between clients resident in the UK and institutions domiciled in the EU. In the case of any doubt, we recommend you contact the Spanish supervisory authority: the Bank of Spain, the National Securities Market Commission or the Directorate-General for Insurance and Pension Funds.

What happens if my British insurer tells me that it has decided to transfer my insurance contract to another institution that can operate in Spain?

The institution must tell you individually of the rights you have in these cases to terminate the insurance contract and to receive the return of the proportional part of the premium payment remaining until the insurance expiry date. The institution will not cover you for the period lasting from when you exercise the right to terminate the insurance contract until the time when the insurance expires.

The institution's practice is correct in this case. The institution may transfer your policy to another institution so that you are not left without coverage when the insurance expires. This transfer will be overseen by the corresponding authorities. Approval from the Directorate-General for Insurance and Pension Funds will be required before the transfer of the policy to another institution can be carried out.

What requirements are applied to British insurance companies for assigning their portfolio to a subsidiary in the European Union?

Without prejudice to the provisions of UK law governing portfolio transfers, an additional guarantee has been established by which the Directorate-General for Insurance and Pension Funds must give its approval for the transfer of the portfolio to another Member State when Spain is the Member State of the commitment or in which the risk is situated.

Does the Spanish Government plan to take contingency measures for financial services?

As indicated in the communication by the European Commission, it is the responsibility of private institutions to adopt in time the necessary preparatory measures derived from the UK's exit from the European Union. Action by the authorities cannot avoid the need to take measures to adjust to the changed situation of the UK.

Financial institutions must speed up their preparations for a non-agreement scenario, assessing the implications and the possible risks, with the aim of implementing the necessary measures. The institutions must also inform their clients on the action plans, particularly if they may be affected as a result of the UK's exit.

The Ministry of Economy and Business has carried out a study on the risks for the financial sector in a no-agreement scenario, and has taken into consideration the analyses of the national supervisors and the European Commission. The Government considers it should act only in those areas where the preparation of the private sector is insufficient to guarantee the protection of clients and legal security. This action will be aimed at minimising residual risks linked to continuity of activity and compliance with contracts.

Which provisions for financial services are included in the Royal Decree-law?

The Royal Decree-law on contingency measures for the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union without having concluded an agreement pursuant to Article 50 includes contingency measures for financial services aimed at guaranteeing client protection. Legal certainty for the continuity of contracts is strengthened through a legal mechanism to allow UK firms to meet their obligations. These measures seek to prevent the impact of higher uncertainty or loss of market access on financial stability or clients.

Article 19 of the Royal Decree-law cover all measures adopted concerning financial services. This article is intended for UK and Gibraltar financial entities that currently operate in Spain, and it contains three main provisions:
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  • Contracts for the provision of financial services signed prior to the departure of the UK from the EU will remain in force. It is thus made clear that contracts will not be terminated simply due to Brexit. This is in line with the statements of the European Comission.
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  • After Brexit, the UK and Gibraltar financial entities must adapt to third-country regimes in order to continue operating in Spain. Given that some activities related to the management of old contracts may be subject to authorization, an extension of the prior authorization will apply to manage these contracts, but it will not cover new activity. This extension will be granted while processing the request for a new one, or to facilitate the relocation or termination of old contracts. The extension of prior authorizations will expire in nine months after the departure of the UK.
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  • The Spanish financial supervisors will oversee this activity and may take any necessary measures to guarantee legal certainty and safeguard the interests of financial services clients.

Activities related to the management of old contracts that do not require authorization can continue regardless of the aforementioned temporary regime. For any consultation, interested entities should contact Bank of Spain, CNMV or the Directorate-General for Insurance and Pension Funds.

What has to be done to become part of the temporary regime?

British or Gibraltarian entities should contact the competent Spanish supervisor in their sector: Bank of Spain for credit entities, payment institutions and electronic money institutions, CNMV for investment firms, venture capital management companies and fund managers, or the Directorate-General for Insurance and Pension Funds for insurance companies, insurance intermediaries and pension fund managers.

The transitional period will end, regardless of the application date, nine months after the effective withdrawal date of the UK from the EU.

Non official translation