Germany’s BaFin tells business to prepare for paradigm shift due to Brexit
Germany’s Federal Financial Supervisory Authority (BaFin) today issued a statement regarding the end of the Brexit transition period.
The Germany regulator says that citizens, companies and the public administration have to prepare for a paradigm shift. On December 31, 2020, the Brexit transition period – during which the UK was still part of the internal market and the customs union – will end.
In December, following intensive negotiations, the EU and the UK succeeded in concluding a free trade agreement that will govern their future relationship in many areas of economic activity.
The agreement will initially come into force on a provisional basis on January 1, 2021. The provisional application of the agreement, which is expected to be approved by the European Council by the end of the year, is to apply until, but not beyond, February 28, 2021.
The European Parliament will need to reach a decision on the final application of the agreement by that date. However, the provisions of this agreement will apply to financial services only to a limited extent, as these will remain subject to EU or UK supervisory law unless other regulations are in place – for example based on equivalence decisions of the European Commission.
From a supervisory perspective, the United Kingdom will be considered a third country in relation to the EU once the transition period expires at the end of December 2020. As of January 2021, financial services providers domiciled in the UK will no longer be able to use the European passport, which had previously granted them access to the entire European Economic Area (EEA).
Unless there are regulations under European or national supervisory law that explicitly set out other terms, companies domiciled in the UK that intend to continue providing financial services in the EEA on a cross border basis without interruption were required to set up a branch in an EEA state by the end of the transition period.
BaFin reminds companies that it is still possible to submit applications for authorisation. In Germany, the conditions for the authorisation requirement and the authorisation procedure are governed by the German Banking Act (Kreditwesengesetz – KWG), the German Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG), the German Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG) and the German Investment Code (Kapitalanlagegesetzbuch – KAGB).