Over four years after the referendum on EU membership, the UK formally left the EU Single Market on 31st December 2021. Due to a lack of provisions for financial services within the subsequent Free Trade Agreement, UK-based entities lost their EU passporting rights and the ability to service EU clients from any UK based legal structures.
In response to this, many organisations set up new or repurposed existing EU regulated legal entities and implemented a ‘back-to-back’ booking model. Under this model the EU entity faces the client with offsetting transactions booked internally and then their UK (or another non-EU based) entity performing the risk, finance and operations-based activities relating to these transactions. As a result of this, London lost relatively few roles to the EU compared with initial estimates.
European regulators however have increasingly made clear that they do not see this as a long-term solution. Instead, organisations are mandating that more activity is moved to the EU and that firms have ‘meaningful presence’ for their activities within the bloc. There has been focus on ensuring that financial firms do not rely solely on ‘shell structures’ or ‘brass plate’ offices for their EU entities.
Read our whitepaper to discover the outlook and impacts of this on financial institutions.
Brexit: Outlook for Financial Institutions – Whitepaper