Brexit Update: Transition Period

03 Mai, 2018

Overview

At the end of March 2018 politicians from the EU and the UK agreed to a transition period. The transition period would begin on “Brexit Day” (29 March 2019), providing banks with legal certainty for their operations until 31 December 2020, for 21 months.

During the transition period European laws will continue to apply in the U.K., but London will not have any say in decision-making that involves the future of the European Union. From a UK perspective the transition period is about preparing for the post-EU time, including preparing and signing new trade deals.

However, the transition period is part of the overall Brexit deal. Hence if there is no deal there will not be a transition period. An overall deal is currently likely, but not certain and must be ratified by the UK parliament as well as EU commission and parliament. There also remains the uncertainty of whether the EU commission and parliament can enact the Brexit deal or whether it needs to be ratified by the EU 27 individually.

Furthermore, it is important to notice that regulators expect banks to be compliant with post-Brexit rules once the above mentioned transition period is over.

London Innenstadt

Impact on incoming banks

Banks headquartered outside the EU 27, who are relocating parts of their business to the EU 27 need a preparation time of 12 to 24 months. The fixing of a deal with a transition period would provide those banks with legal certainty that they can continue their current business until 2021.

Due to the preparation timeline we are expecting incoming banks to move ahead without any slowdown in activities.

Impact on outgoing banks

Banks who are headquartered in the EU 27, but have a branch in the UK have on average a preparation time of 12 months. Therefore, once a deal is fixed and there is a transition period, the activities of outgoing banks could slow down due to the prolonged timeframe.

These banks should bear in mind other regulatory requirements arising from Brexit might interfere with their operations.

Resume

We are expecting banks to keep up pace with their Brexit initiatives and projects, since the downside risk of a transition period not being agreed upon is extremely high and the transition period will be part of the overall Brexit deal. From our perspective there is no time to rest now.

Contact us

Stephan Lutz

Partner Capital Markets Lead, PwC Germany

Tel.: +49 69 9585-2697

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