As COVID-19 continues its hold over the globe discussions on Brexit have, understandably, been relegated in importance. But, the UK stance continues to be fairly dogmatic, insisting that the transition phase will last no longer than the currently agreed date of 31 December 2020. Thereafter, and absent any trade deal that mirrors the current ‘passporting’ arrangements enjoyed by financial institutions, UK firms active in Europe will likely only be able to continue to undertake business there if they have established a new company in an EEA Member State.
With less than seven months left then, there is still time to submit your application, cross your fingers and hope for the best!
Over the past two years or so, I have used my previous roles at the FCA (in charge of the passporting and authorisation teams) and my erstwhile counterparts at various EEA competent authorities to survey the landscape for those UK firms seeking a new EEA home post-Brexit. The result was an analysis of the expectations of half a dozen regulators (at least those who were happy to go on the record) when receiving such applications. Not so much five reasons to choose a particular jurisdiction, but five factors you should take into account, which are not new but are still highly relevant:
Not necessarily a reason for leaving Europe, but the English are notoriously bad/lazy when it comes to speaking another language. Fortunately, most of Europe’s regulators are staffed by English-speakers, making that initial conversation that much easier. However, to what extent will they expect you to complete an application, or converse with them as part of ongoing supervision, or prepare framework contracts and product literature, in their home language? Not unreasonable I would suggest.
Or ‘ask your bank’. Whilst the principle of mutual recognition drives the passporting of services across Europe, that’s not to say that all regulators are perceived to be of the same standard. From a bank’s perspective, this may be due to increased financial crime concerns or a lax supervisory record. Either way, were you to suggest to your bank seeking to set up shop in one of those jurisdictions, you may find yourself looking for a new bank.
How long is it going to take? Whilst every regulator will cite the appropriate single market directive for the statutory deadline (e.g. 6 months for MiFID/CRD, 3 months for PSD/EMD), this is predicated on them receiving a ‘complete’ application. Regardless of the knowledge, experience and effectiveness of your friendly neighbourhood compliance consultant, most applications across Europe are deemed to be received as ‘incomplete’. [If only there was some guidance that clearly stated the criteria to be applied when assessing an application for completeness!!!]
Unfortunately, getting more granular data from each regulator as to the average determination time for applications is quite difficult. Typically, they do not publish this data on their websites, so you are relying on what the regulator tells you: “the directive allows us X months to process a complete application…”
4. The Motherland
I am fortunate that my family is quite cosmopolitan in its collective roots (but subject to Point 1. above!), with Greek, Spanish, Italian and Irish heritage. Similarly, a number of owners and controllers of financial institutions will likely hail from another EEA country or have family there, which might make it attractive to re-domicile in that territory.
5. Just because
Finally, it might be that it’s just obvious that you should seek to set up in a particular country, if the majority of your EEA-wide business is being carried on in that Member State. Remember though, that wherever you look to become ‘established’, the regulator will expect you to actually be there, with ‘mind and management’ of the business being closely scrutinised and demonstrated through a fully functioning management body, the majority of which is likely to be required to be resident in that Member State.
It may well be rather late in the day to think about setting up a new business in Europe, but is it too late? Much will depend on the coming weeks and months of discussions between the UK and EU and the extent to which COVID-19 disrupts this timetable.
If you need to discuss your options, we’d be happy to hear from you.
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