Brexit update: Financial services and The Lugano Convention

Although public attention continues to focus primarily on Covid-19 at present, Brexit matters are not far below the surface.

Financial Services Sector

As the UK and the EU continue with their discussions for a new post-Brexit relationship following the transition period (which is due to expire on 31st December 2020 unless extended by one or two years by mutual agreement of the UK and the EU), different issues keep on popping up.

Thus, on 4th May 2020, the UK House of Commons European Scrutiny Committee published a letter dated 30th April 2020 that its Chair, Sir William Cash MP, had written to John Glen MP, Economic Secretary to the UK Treasury, asking whether the UK will be establishing a binding set of classifications (“taxonomy”) for UK “sustainable” investment products  comparable to those provided for in the recently adopted EU Taxonomy Regulation, which itself is due to come into force after the end of the current transition period and therefore will not be binding on the UK (unless otherwise agreed between the UK and the EU in the on-going negotiations for a post-transition period relationship).

The point of Sir William Cash’s letter is that, as the letter itself states, “the UK remains of course Europe’s largest financial centre and a hub for investment activity” and the UK must take care, therefore, not to be left behind in their development of new “green” investment products.

On the financial services sector more generally, the UK Government published a letter on 5th May 2020 setting out its views on the nature and role of any future UK-EU institutional arrangements on financial services and on the recognition of rulings of the European Securities and Markets Authority (ESMA) by non-EU countries such as the UK following the transition period.  The contents of that letter are not yet widely available but may set the tone for future discussions between the UK and the EU on financial services.

On 6th May 2020 , the Financial Conduct Authority ( FCA) published a speech by Nausicaa Delfas, its Director of International, focusing on the need for the UK and the EU to agree on certain matters during the transition period so that UK financial services businesses can continue to trade smoothly in the EU after the transition period at least for an interim period. She referred to unilateral steps that the FCA had taken in the other direction so as to permit the continued operation of EU financial services businesses in the UK after the transition period at least for an interim period.

UK- US trade talks

These talks have now begun but interestingly the US Chamber of Commerce is reported by “The Times” of 6th May 2020 as warning that uncertainty about the UK’s post-transition period relationship with the EU “risks limiting prospects” of a UK-US trade deal and that it would make sense for the UK to “reset its relationship “ with the EU before focusing on other economic relationships. ”The Times” report talks of US companies having invested more than US$750 billion in the UK with many doing so “to access the larger EU single market”. The British Chambers of Commerce are reported in the same Article as saying that clarity on ties with the EU remains the UK’s biggest trade priority.

It is sometimes easier to take on board advice from outside the family circle than from within one’s own family and it may be that the UK Government will listen to what the US Chamber of Commerce is saying on the implications of Brexit for UK-US -EU trade and investment to a greater extent than from the UK’s own trade bodies.

Transparency in the UK-EU negotiations

On 6th May 2020, the UK House of Commons European Scrutiny Committee published a report under its statutory powers  contained in section 13A European Union ( Withdrawal) Act 2018 calling for a parliamentary debate on the progress of the UK-EU negotiations for a new post-Brexit relationship following the end of the transition period and for the UK Government to be as transparent as possible about them, including the publication of draft legal agreements between the UK and the EU which the UK Government has submitted to the EU for consideration but has so far refused to publish to a wider audience.

The Lugano Convention

On 14th April 2020, the UK Government deposited an instrument with the Swiss Federal Government as the depositary authority,  applying for accession to the 2007 Lugano Convention on civil jurisdiction and the recognition and enforcement of civil judgements. At present, the UK participates in the Lugano Convention by virtue of its  continued involvement in the EU single market during the transition period as provided for by the UK-EU Withdrawal Agreement 2020 but this participation will lapse at the end of the transition period and hence the need for the UK to apply for continued participation in the Lugano Convention in its own right. The Lugano Convention is widely considered to be hugely beneficial for the  operation of civil ( ie non-criminal) justice across Europe and it is not surprising that the UK wishes to adhere to it. Some newspaper reports have, however, suggested that the EU side ( which continues to participate in the Lugano Convention in its own right) may delay its agreement to the UK’s accession to the Convention unless and until a comprehensive deal between the UK and the EU has been worked out on all Brexit-related matters. We shall see!

And finally!…A Brexit dividend?

The Times” of 6th May 2020 reported that, according to Bank of America, the UK Government  may well be spending up to £8.3 billion over next 18 months preparing for and implementing new trade and other economic arrangements, which may be likely to take effect after the transition period. About half of this sum would go to contractors who would be helping the UK Government to take on jobs that were previously carried out by the EU. The sun may , therefore, be shining at least for some businesses post-Brexit!

 

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David Glass

Specialist in Business & Corporate, Commercial Contracts
& Insolvency & Corporate Recovery

E: [email protected]
T: +44 (0)845 257 9449