'No deal' Brexit will impact payments, UK government says

Out-Law News | 24 Aug 2018 | 9:48 am | 2 min. read

The cost of making some card payments, and the time taken to process other transactions, could increase if there is no Brexit deal, the UK government has said.

The warning was contained in one of a series of new technical notices that it published on Thursday in which it highlighted the implications of a 'no deal' Brexit for businesses and consumers.

"The cost of card payments between the UK and EU will likely increase [in a no deal scenario], and these cross-border payments will no longer be covered by the surcharging ban (which prevents businesses from being able to charge consumers for using a specific payment method)," the government's 'no deal' technical notice on banking, insurance and other financial services said.

The cost and time of processing euro transactions could also increase for banks and other payment service providers based in the UK, the government said.

In its notice, the government also said customers of UK financial services firms which are based in the European Economic Area (EEA) could "lose the ability to access existing lending and deposit services, insurance contracts" because UK firms will lose 'passporting' rights to the EU market under a no deal scenario. It said, though, that some firms had already recognised this risk and are taking mitigating action.

"Many UK financial services firms who currently passport into the EEA are taking steps to ensure that they could continue to operate after exit, for example by establishing a new EU-authorised subsidiary," the government said. "This would allow the UK firm to offer new services after exit through its EEA subsidiary, and in some cases existing contracts could be transferred to the new entity."

The government used its paper to highlight actions it has already taken to limit the immediate impact of a no-deal Brexit on financial services firms. Those actions include its move to establish a new temporary permissions regime that would allow EU-based financial services firms to continue operating in the UK for a limited period in that eventuality.

A temporary recognition regime for central counterparties has also been proposed in draft legislation, and similar temporary regimes are also anticipated for EEA-based electronic money and payment institutions, registered account information service providers, and EEA funds that are marketed into the UK, the government has said.

Despite focusing on the no-deal implications for financial services, the government's paper advised financial services firms to continue their Brexit planning on the basis that an implementation period will be agreed between UK and EU Brexit negotiators.

"At this stage, firms should continue to plan on the basis that an implementation period will be in place from March 2019 to December 2020, and continue to follow guidance from the regulators," it said.

Elizabeth Budd, an expert in financial services and Brexit at Pinsent Masons, the law firm behind Out-Law.com, said: "The UK regulators have recognised and are addressing to the extent that they are able, the issues faced by incoming firms if no deal is reached. The temporary permissions proposal for example is very welcome. However, it remains unclear what if any reciprocal arrangements will be proposed by EU regulators. For this reason it is prudent to consider the impact on your business in seven months’ time of lack of access or delays to EU markets and whether establishing an EU subsidiary which is authorised in a member state is the prudent approach. The window to obtain EU authorisation by 30 March 2019 is fast closing, if not already closed in some jurisdictions."