The German Government has revised the Draft Act on Brexit Transitional Rules for UK firms after a Hard-Brexit. The revised Draft Act provides details on the conditions for the German Transitional Rules and how BaFin can make use of these rules.
On 12 December the German Government published an amended draft of the Act Supplementing the Act on Tax-Related Provisions concerning the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union (Brexit-Steuerbegleitgesetz – “StBG”). You can find information regarding the previous draft, which was introduced by the German Ministry of Finance on 20 November 2018, here.
The revised version includes several clarifications according to which BaFin may grant passporting like rights to UK firms (UK passport firms) during the transitional period.
The StBG now sets out that the EU passport regime to “banking business and financial services” (rather than “financial transactions” as stated in the previous draft) provided after Brexit can only be considered insofar as the services are “closely related to contracts” already existing at the time of Brexit.
It is further clarified, that BaFin may grant UK banks and financial services institutions the same status as if they continued to hold an EU passport, by way of general decree (Allgemeinverfügung).
The new Draft Act also sets out the understanding of “closely related to contracts”. The StBG restricts the further business to:
- services and contracts that are necessary for risk management purposes of contracts entered into before Brexit occurs, and
- material changes of existing contracts as a result of so-called lifecycle events.
A close relationship with an existing contract may be assumed when the services are legally or economically linked to the contract, such as:
- when the services are provided to close out contractually justified risk positions
- when the services are provided in the course of the inclusion of an existing contract in a portfolio compression
- because the services represent commercially customary subsequent services (such as prolongations), or
- because the services represent the exercise of contractually granted rights (such as options or conversion rights).
The new Draft Act shows that the decision whether UK firms are allowed to continue providing banking businesses and financial services to the German market depends on the pre-Brexit “existing contracts”. Only when the services are closely related to existing contracts, they will benefit from the extended passport regime.
The new Draft Act also clarifies that BaFin may grant to all UK passported firms the passport rights rather than deciding on a case by case basis. It is very likely that BaFin will publish closely to or on Brexit day a general decree on its website, allowing all UK passported firms to continue providing their services to the German market subject to the above listed conditions.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.