Yes, it finally happened.
On January 1, 2021, European Law has ceased to apply within the borders of the UK. As a result, banking, financial and payment institutions, as well as insurance institutions, have lost the right to operate in the European Economic Area (EEA) and sell financial or insurance services to customers located in the EEA without the appropriate authorization delivered by a member state of the EEA.
Passporting, which allowed UK firms pursuant to the principles of freedom of establishment or free provision of services within the EEA to conduct business in EEA member states based on their UK licence delivered by the Financial Conduct Authority and/or the Prudential Regulation Authority, is not effective any more since January 1, 2021
National Competent Authorities in the EEA are now responsible for issuing licences to UK firms
As a result, UK firms that were doing business in the EEA until December 31, 2020, and wish to continue to do so after January 1, 2021, are required to be established in an EEA member state and authorized by an EEA regulatory authority (National Competent Authority or NCA).
This obligation extends to any UK firms providing banking, financial, payment or insurance services within the EEA.
UK is now a third country under General Data Protection Regulation (GDPR)
UK firms dealing with EEA customers should be aware of the conditions that apply to the transfer and the use of personal data pursuant to the General Data Protection Regulation (GDPR), in force in the EEA member states. Complying with GDPR is essential for UK firms to retain the confidence of their EEA customers since the UK is not part of the EEA any more. UK firms must take extra care to make sure that they now comply with GDPR rules for the use and transfer of personal data outside of the EEA.
The high risks of operating without an EEA licence
UK firms should not rely on the impression that Brexit has only marginally impacted their FCA licence but rather avoid a “business as usual” approach providing a false and treacherous sense of comfort. In reality, UK firms still operating under their FCA licences with the feeling that nothing currently prevents them to do so in the UK might be far from the truth. Pursuant to its Principles for Businesses (in particular PRIN 1 and PRIN 3), the FCA has the power to sanction firms that are repetitively breaching a foreign law statute.
In addition, UK firms that have continued to provide services in an EEA member state after December 31, 2020, without a licence to operate from such member state’s regulatory authority, may face charges for felony for illegal practice in such member state as established by the ESMA.
