Authorisations/passporting: for UK banks and other financial services firms operating internationally, or overseas banks/financial services firms operating through UK subsidiaries, probably the single most important aspect of the UK’s membership of the EU is access to the “single passport”. This enables firms providing financial services in one Member State to operate in other Member States without having to seek authorisation in each and every Member State in which they wish to operate. Many non-EU banks/firms use the UK as their gateway to Europe, thus enabling them to benefit from the four freedoms of movement which membership of the EU confers.
As a result of the UK leaving the EU, UK based banks/firms (including non-EU banks/firms operating through UK subsidiaries) risk losing that passport and need to consider establishing operations in another EU Member State to retain a single passport. Otherwise they will have to revert to individual applications for authorisations in individual countries (with the time, relocation and cost consequences which this will entail).
UCITS funds: funds established as UCITS in the UK would no longer fall within the UCITS Directive. To the extent that those funds benefit from the UCITS passport and their managers wish to continue marketing the fund in the EU, then such funds would need to be migrated to an EU Member State. For so long as the fund remains in the UK, it is likely that the Financial Conduct Authority (FCA) would regard the fund for UK regulatory purposes as a type of non-UCITS retail fund, which would be categorised as an Alternative Investment Fund (AIF) under the Alternative Investment Fund Managers Directive (AIFMD). This means that, to the extent that the fund is marketed in the EU, then it would be subject to additional marketing restrictions and largely unavailable to retail investors - it would also need to comply with the different operational, reporting and transparency obligations that AIFMD brings with it.
UCITS management companies established in the UK wishing to continue acting for non-UK UCITS would need to redomicile into an EU Member State or be replaced by EU entities.
AIFMs: UK AIFMs would cease to be EU AIFMs. The UK would be able to impose a lighter post-Brexit regulatory regime on its asset managers. However, a UK AIFM wishing to market its funds to investors in the EU would be required to either (a) use local National Private Placement Regimes (NPPRs) where available (or rely on reverse solicitation) or (b) wait for the UK to be assessed and approved by ESMA and for the AIFMD passport to be extended to it (and to the third country in which any relevant non-EU AIF is established).
Non-EU AIFMs who market AIFs to investors in the EU must still comply with certain transparency and reporting obligations (including "Annex IV" reporting to local regulators). Where access to the marketing passport is allowed and the non-EU AIFM elects to make use of it, however, the full provisions of the AIFMD will apply. As NPPRs may be phased out over time, the option of relying on NPPRs may, consequently, only be temporary.
A non-EU AIFM making use of the marketing passport will need to select an EU Member State of reference to act, essentially, as its “home regulator” within Europe. A UK AIFM would in time, therefore, find itself subject to the same regime as before a Brexit, but with an EU Member State regulator, in addition to the FCA, to deal with.
MiFID firms: negotiations around the terms of exit are likely to take until at least 2018 to finalise. During this interim period, MiFID2 and MiFIR will become effective in all EU Member States. Departure from the EU would allow the UK to determine whether it followed the rules which would be implemented across the remaining Member States or created a regime of its own (or did both, by allowing parallel regimes into which firms could opt).
No longer being part of the EU would mean that UK firms undertaking MiFID-type business (UK MiFID firms) would no longer be able to make use of the MiFID licensing passport, under which a firm licensed in one Member State is able to provide its services cross-border throughout the EU without further local requirements being imposed. However, on the basis that ESMA may ultimately assess the UK’s regime as being equivalent to that of MiFID2/MiFIR, it would be open for UK MiFID firms, as third country firms, to take advantage of the third country access rules, once those rules are in force.
The new third country regime would allow a UK MiFID firm to be able to register a branch within the EU, either with the EU national competent authority in the relevant Member State or centrally with ESMA (depending on the customer type with which the firm deals). The third country rules are not immediately effective when MiFID2 comes into force and UK MiFID firms would, therefore, risk facing a period of time during which they are neither MiFID firms, nor able to benefit from the third country licensing regime.
Further, under the existing MiFID regime (and to continue under MiFID2/MiFIR), investment firms from one Member State are permitted access to regulated markets, central counterparties (CCPs) and clearing systems in other Member States. As with AIFMs and UCITS, a consequence of the UK no longer being a Member State is that (subject to the terms of any new treaty), such firms would no longer be able to take advantage of these provisions.