Monthly Archives: March 2021

On December 24, 2020, the United Kingdom and the European Union concluded one of the largest trade deals in history, the EU-UK Trade and Cooperation Agreement (TCA). While the TCA regulates a number of important areas, it does not address in detail significant aspects of the UK economy, including the services sector, which represents the largest portion of the UK GDP. In this publication, we discuss key areas of the TCA of relevance to our clients, identify important issues that remain largely unregulated and examine other topics of note.

ESG Rules: Will the UK Align With the EU?As ESG regulation comes into force in Europe, financial services businesses operating in the UK and the EEA face the prospect of multiple layers of ESG-related regulatory compliance. In this article, we explore the potential challenges such businesses face.

Remuneration and Incentive Arrangements Under UK LawUK employee and executive share plan and remuneration arrangements engage a number of different EU laws and regulations. Although some areas of uncertainty remain, the UKs replication under UK law of many of the relevant rules has meant that administration of remuneration and incentive arrangements will continue largely unaffected, at least for now.

Recognition of Restructuring and Insolvency ProceedingsThe TCA did not include language on cross-border cooperation and recognition regarding insolvency proceedings. As a result, debtors with a presence both in the UK and the EU face a challenging patchwork of different rules and regulations.

Navigable Challenges for Private FundsAlthough the financial services industry was omitted from the terms of the TCA that outlined cooperation between the UK and the EEA, the private fund community has created a number of structures in recent years that should be helpful as it navigates the current uncertainty. Well-advised managers should be able to maintain the UKs standing as a leading asset management jurisdiction.

Offsetting the Loss of Passporting Rights in Financial Services RegulationThe TCA does not provide a comprehensive free trade arrangement for financial services between the EU and the UK. UK firms which previously enjoyed unhindered access to the EU market under the passport must now establish a licensed entity in the EU or augment the use of an existing EU-based entity.

Impact on the Fintech SectorThe TCA sets out some obligations for parties to establish arrangements governing trade in digital services, but it does not offer substantive provisions to offset the fact that the UK no longer benefits from being part of the EU single market for financial services. EU and UK fintech firms must now grapple with two regulatory regimes where they previously relied on the EU-wide passport to provide cross border services.

Reaching a Consensus on (Re)insuranceWithout clarity from the TCA on financial services, including (re)insurance, a UK participant may now access new EU business only via an EU-authorised subsidiary/branch or, in limited circumstances, on a cross-border basis that is subject to the requirements of the relevant EU member state.

Level Playing Field Obligations: Insurance Policy or Tinderbox for Future Trade Disputes?The TCA's level playing field provisions are among the most politically charged in the agreement. Requiring the parties to maintain current and future standards in nontrade-related policy areas, the provisions have the potential to be a source of disruption for future trade disputes if deployed. How realistic the application of this contentious provision is likely to be in practice, and the extent to which it creates challenges for both the EU and the UK, remains to be seen.

A Temporary Solution for Data Protection and Digital TradeBrexit has raised many questions regarding the future of data protection and digital trade. The TCA reaches a positive, pro-business position on data protection and digital trade that should be welcomed by organisations navigating the new relationship between the UK and EU in these important areas.

Plus a Change ... Reframing the Tax Influences of the European UnionThough the UK and the EU have separated, the TCA provided a very long rulebook on how to co-exist. In addition to new tax policy enshrined within the TCA, some EU-derived tax rules set prior to Brexit will still need to be observed.

The Future of Employment Rights and Worker MobilityFollowing the implementation of the TCA, companies must keep in mind the agreement's provisions relating to worker mobility, limitations on travel to perform services and recognition of professional qualifications in both the EU and UK. The potential for future changes to EU-derived employment rights in the UK is also subject to level playing field requirements.

EU-UK Antitrust Enforcement and CooperationThe UKs new relationship with the EU under the TCA brings material changes to the EUs and the UKs antitrust regimes. For mergers and anticompetitive practices, the two regimes will apply in parallel. More far-reaching is the new UK subsidy control regime that seeks to prevent EU-UK trade-distorting subsidies, and the potential for either the UK or the EU to impose stricter standards on the other under a controversial level playing field provision.

Civil Disputes: New Gaps, Old SolutionsThe application within the UK of EU rules on jurisdiction and enforcement, including the Brussels and Lugano regimes, ended when the UK completed its formal separation from the EU. Litigants and drafters of commercial contracts must instead look elsewhere for now, to the 2005 Hague Convention and English common law for the rules on choice of jurisdiction and enforcement of judgments.

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Insights Special Edition: Trade and Cooperation The Final Phase of Brexit - JD Supra

LONDON The shift in financial staff and assets from the City of London to the European Union because of Brexit has eased after Britain completed its full departure from the bloc, a tracker from consultants EY showed on Tuesday.

Financial services are not included in the EU-UK trade deal that came into effect on Jan. 1, largely cutting off the City from the EU.

Financial firms in Britain have opened subsidiaries in the EU, with Dublin and Luxembourg the most popular destinations, EY said.

After the major hurdle of standing up new EU hubs, the days of significant swathes of asset and job relocation announcements appear to have passed and will likely be replaced by the slower yet ongoing movement of people and assets to Europe for compliance purposes, Omar Ali, a financial services managing partner at EY, said.

EY said in its latest Brexit Tracker that job moves have risen to almost 7,600, up by 100 since October, while the number of new hires in Europe since Britains EU referendum in 2016 remains flat at around 2,850 new jobs.

The loss is a small fraction of total jobs in British financial services and is far lower than initial predictions.

There was also an incremental rise in the relocation of assets, now totalling almost 1.3 trillion pounds ($1.82 trillion), up from 1.2 trillion pounds previously, EY said.

On Jan. 4, more than 8 billion euros ($9.63 billion) in daily share trading shifted from London to Amsterdam and Paris, followed by chunks of trading in euro-denominated swaps.

The EU is targeting the clearing of euro swaps, which London dominates, although EUs Ali said splitting markets would not benefit Europe.

Fragmentation of European financial services will serve to only benefit the U.S. and Asia, he said. Some of the swaps trading that has left London has moved to New York.

EY calculated its figures from public statements by 222 of the largest banks, insurers, fintechs and asset managers since June 2016 to the end of February 2021. A quarter, or 57 firms, said Brexit has or will have a negative impact on them, up from 49 in January 2020.

($1 = 0.7162 pounds) ($1 = 0.8306 euros) (Reporting by Huw Jones; editing by Barbara Lewis)

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Post-Brexit Exodus of Staff and Assets from London to EU Slows - Insurance Journal

This fireside chat recap is from Day 6 of FreightWaves Global Supply Chain Week. Day 6 focused on global maritime logistics.

FIRESIDE CHAT TOPIC: How Brexit will influence trade across Europe

DETAILS: While the U.K. has already left the European Union, there are a number of questions that remain about trade flow, customs regulations and relationships between Britain and the EU.

SPEAKER: Walter Van der Meiren, director for customs brokerage at UPS Europe.

BIO: Van der Meiren has over 35 years of experience dealing with customs trade between countries. He is part of the European Express Association and the Customs Taskforce of Business Europe and serves as chairman of the Customs and Trade Facilitation Committee at Amcham EU and vice chair of its Brexit task force. Since Jan. 18, Van der Meiren has served as chairperson of the Trade Facilitation Committee of the European Express Industry.

KEY QUOTES FROM VAN DER MEIREN: The U.K. left the club and if you leave the club the rules dont apply to you anymore. But if you are still doing business with the club, you have to come up with new rules. In order to prepare ourselves for this, UPS from the first day after the referendum started looking at different things that looked at all aspects of new logistics.

One of the most challenging items was the unpredictability of deployment date and also not knowing what the requirements would be.

In my 36 years Ive seen customs change dramatically in terms of legislation, in terms of technology, in terms of taxes, because customs is traditionally a revenue collector. What people need to understand is that customs has grown into a pretty important actor in terms of safety, security and anti-terrorism but also in protecting citizens in checking goods and that adds to the complexity that we now have facing Brexit.

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GSCW chat recap: Customs and trade in post-Brexit world - FreightWaves

LONDON The U.K. faces significant challenges in shouldering the burden of regulation it had previously outsourced to Brussels, the government has been warned.

A new report by the UK in a Changing Europe think tank says the fresh autonomy provided to the U.K. by the Brexit trade deal will lead to duplication of many of the EUs rules. But it finds British regulators may not have enough resources to do the job.

Britains post-Brexit regulatory cooperation with the EU is expected to vary significantly depending on the sector, with differing approaches in chemicals, agriculture and aviation.

The report, written by a host of specialist academics, warns that many British regulators, unused to these fresh powers, may lack the money and manpower needed to make effective use of them, while also losing access to formal networks for cross-EU collaboration.

A lack of industry appetite could meanwhile constrain big moves to diverge from Brussels' regulations, the think tank argues.

Some British regulators will simply take on powers of their EU counterparts and duplicate their activities, but others will have to collaborate with Brussels to maintain equivalent standards and some will need to share data and intelligence with one another.

Without correct legislation in place, many U.K. bodies were not ready to assume their regulatory responsibilities on 1 January 2021, the report says.

The think tank points to the U.K.'s pledge to set up a new Office for Environmental Protection post-Brexit. The Environment Bill establishing the new watchdog was not made law before the end of the transition period. As a result, it says, the Interim Environmental Governance Secretariat is little more than a postbox within the Department for Environment, Food and Rural Affairs, creating a gap in government accountability.

The authors also warn that duplication will add to businesses' costs in a host of areas, with personal data a major concern. If there is a data breach that crosses borders, firms will have to notify both the U.K.s Information Commissioner's Office, and at least one EU supervisory authority. Each body could also investigate and impose sanctions, including fines.

The report says this move has already triggered a transfer of user agreements by some of the worlds largest tech companies, including Facebook and Google, from Britain to their headquarters in California, beyond control of European Union data protection regulators.

Mergers and acquisitions are also flagged as an area of fresh duplication. Before the Brexit trade deal, companies had to comply with either the U.K.'s Competition and Markets Authority (CMA) or the European Commission, but now if they have cross-border business interests, they will likely have to comply with both regimes.

The U.K. has assumed huge regulatory responsibilities, but it is not clear that U.K. regulators are sufficiently powerful, have the right resources or can develop the necessary expertise to perform effectively even in the medium-term, said Professor Hussein Kassim, a senior fellow at UK in a Changing Europe, in a statement. Although the U.K. has gained regulatory autonomy in theory, it faces formidable constraints to diverge in practice.

A U.K. government spokesperson said better regulation would be a key part of making the most of opportunities outside of the EU, and highlighted the new Better Regulation Committee to be chaired by Chancellor Rishi Sunak.

They added: "Changes to our regulation will be considered through parliamentary and public scrutiny as usual and will always be in the best interest of UK citizens and businesses.

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UKs Brexit bid to diverge from EU faces formidable constraints - POLITICO.eu

Ministers have been advised to consider tariffs on imports of lower-standard food and farm produce from overseas, in order to protect the UKs high standards of food safety and animal welfare.

The recommendation, by an independent commission advising the government, was greeted with dismay by some farmers and food campaigners, who wanted an outright ban and regulations to prevent lower-standard imports in trade deals after Brexit.

George Dunn, the chief executive of the Tenant Farmers Association, said: Seeking to protect environmental and animal welfare considerations by using tariff policy alone will not provide the long-term guarantees we need. Tariffs can be easily renegotiated, reduced or removed altogether, unlike clear, statutory standards.

Kath Dalmeny, the chair of the Future British Standards Coalition, also said tariffs were inferior to an outright ban on lower-standard imports. We have been clear that tariffs are no substitute for clear blanket bans and that tariffs could be easily reduced or phased out over time, thus breaking the governments promise of no compromise on food standards, she said.

The recommendations of the trade and agriculture commission were published on Tuesday, and will be considered by ministers for possible incorporation into guidelines for future trade deals. The commission was set up to reassure farmers and the public after ministers rejected calls for parliament to be allowed to scrutinise trade deals before they are signed, despite widespread fears that UK food and farming standards could be at risk in trade deals.

Dalmeny also warned that the recommendations by the trade and agricultural commission would allow imports without tariffs on products that were judged equivalent to the UK in terms of standards, or aligned with core global standards.

In many cases global standards are lower than the UKs. Big questions remain over who would decide what was equivalent, and how, she said.

However, the governments food tsar, Henry Dimbleby, said the recommendations would protect British consumers. This report far exceeds my expectations and is very ambitious, he said.

It sets clear intent for the UK about what we see as the future global trading system, which should be not just about GDP but about governments working together to protect the environment and animal welfare, and reduce carbon emissions.

He rejected the idea that tariffs alone were not enough to protect the UKs consumers and farmers from lower-standard food produced abroad. Tariffs are effective bans, he said, as importers would be priced out of the market by tariffs.

The guidelines from the trade and agriculture commission call for liberalised trade in food and agriculture with other countries, but say this should be balanced with a commitment to international leadership by the UK on climate, environment, animal welfare and ethical trade.

Tim Smith, the former chief executive of the Food Standards Agency and Tesco group quality director, who chaired the commission, said its recommendations should reassure the public.

We will not see a backsliding on standards. We are recommending very solidly that our standards remain, he said before the publication of the report. We need to balance the need to be open to liberalised trade with the importance of long-established UK standards.

The question of food standards has been one of the most controversial issues raised by Brexit. Many of the countries with which the government wants to do trade deals have much lower food safety and farming standards than the EU, and many products from these countries were previously banned from the UK under EU rules.

The government will be under pressure in trade deal negotiations to allow such imports. That has raised fears among farmers that a flood of lower-standard imports could undercut British produce, while they must maintain high standards to be able to export to the EU. Food campaigners have warned that consumers could be subjected to unsafe or lower-standard products that would promote intensive farming, damage animal welfare and boost diseases such as superbugs that are associated with the overuse of antibiotics in farming.

Sue Davies, the head of consumer protection and food policy at Which?, said the government must not allow any weakening of UK food and farming standards. The government must hold firm to its commitments to uphold food standards and listen to the voices of consumers, she said. They have told us clearly they are not prepared to sacrifice high food standards and do not want a two-tier system where only those who are wealthier can be assured that the food on their table meets the standards that consumers currently expect.

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Use tariffs to protect food safety and animal welfare in post-Brexit deals, ministers told - The Guardian

Britains manufacturers suffered from mounting supply chain disruption in February as Brexit and the third Covid lockdown weighed down growth in factory production, according to a survey.

In a reflection of continuing border disruption since leaving the EU, the latest snapshot from IHS Markit and the Chartered Institute of Procurement & Supply revealed the third biggest increase in supplier delivery times on records dating back to 1992.

Industrial output rose at the weakest pace in nine consecutive months of growth, as the manufacturing sectors rebound from the pandemic was held back by worsening supply-chain disruption and rising cost pressures.

According to the survey of 600 manufacturing firms, which is closely watched by the government and the Bank of England for early warning signals from the UK economy, business optimism rose to a 77-month high in February amid expectations for a sharp recovery as Covid restrictions are relaxed.

The reading on the IHS Markit/CIPs purchasing managers index (PMI) rose to 55.1 in February, up from 54.1 a month earlier, on a scale where anything above 50 separates economic growth from contraction.

However, analysts said the index was being artificially boosted by Brexit and Covid border disruption. Unlike normal, when longer production lead times would reflect strong economic growth as firms battle to meet demand, pushing up the index, the cause this time around is negative for companies.

About 58% of companies reported longer delivery times from suppliers, while only 2% saw an improvement, as international shipping delays, worldwide demand for raw materials and Brexit-related trade issues weighed on activity.

Rob Dobson, a director at IHS Markit, said: Look past the headline PMI and the survey reveals near stagnant production, widespread shipping and port delays and confusion following the end of the Brexit transition period.

In the two months since leaving the EU on terms his government agreed with Brussels, Boris Johnson has admitted there are teething problems affecting cross-border trade. In acknowledgment, ministers promised 20m of financial support to help small firms prepare for further customs checks still to be put in place.

But rather than early issues that will fade as firms adapt, company bosses say higher costs and delays are an endemic feature of Brexit and stand as a permanently higher cost of doing business with the EU.

James Brougham, a senior economist at Make UK, the manufacturing industry trade body, said over the short term these barriers were limiting the sectors ability to fight back from the Covid recession.

The compound effects of continued Covid-19 related disruption now exacerbated by manufacturers cautious navigation of the new UK-EU trading arrangement has created a scenario in which logistical and supply-side challenges are limiting the rate of economic recovery for the sector, he said.

Separate figures from the Bank of England showed British households paid back 2.4bn of borrowing on credit cards, personal loans and overdrafts in January, in a reflection of weaker consumer spending during the third lockdown.

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Although a smaller net repayment than during the first wave last spring, when more than 7bn was repaid in April 2020, the annual consumer credit growth rate plunged to -8.9% in January, the lowest level since records began in 1994.

The total amount outstanding on credit cards and loans shrank to 199.4bn, falling below 200bn for the first time since April 2017.

The mortgage market remained strong despite the latest lockdown and deadline for the stamp duty holiday at the end of March, with 99,000 new loans approved in January. While down from 102,800 in December, mortgage approvals an indicator of future lending volumes remained well above the pre-pandemic monthly average of 67,900.

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UK factory production slows amid Brexit and Covid disruption - The Guardian