BREXIT: FLA Summary, 22 May 2023
1. This note summarises the current situation, and describes the action taken by the FLA on behalf of its members since the EU referendum on 23 June 2016. The note is regularly updated.
The current state of play
2. On 27 February 2023, the UK Government and the EU agreed the Windsor Framework (in essence, the Northern Ireland Protocol) as a way forwards on the trading position of Northern Ireland post-Brexit. The agreement establishes a new UK internal market scheme based on commercial data-sharing and a new VAT scheme (previously announced) for second-hand vehicles purchased in Great Britain and moved to Northern Ireland for resale (see emails of 28 February and 27 January). It is expected that this will unlock several issues including UK access to the EU’s Horizon R&D programme. The Unionist community is considering its position.
The deal
3. On Christmas Eve 2020, four-and-a-half years after the UK’s decision to leave the European Union, the Government reached a deal with Brussels in respect of future trading arrangements and cooperation on criminal matters. The text of the Brexit agreement amounted to 1,246 pages. The Government also published a summary explainer highlighting the new arrangements.
The future relationship
Trade:
4. The Agreement established zero tariffs or quotas on trade between the UK and the EU, where goods meet the relevant rules of origin. Of particular note was that deal allows for preferential tariff rates for batteries and electric vehicles until the end of 2023 (with other elements coming into effect by the end of 2026. In effect this, this gives the UK until then to build its own supply chain of electric vehicle parts or source them from the EU. Otherwise tariffs will be applied on those imported from Asia (which is the current market for the UK). The automotive sector has expressed concern that the lack of UK battery gigafactories will put the UK at a competitive disadvantage.
5. Ireland has issued guidance on the customs/tax treatment of vehicles important from Northern Ireland into the Republic.
Law enforcement:
6. The Agreement provided for the fast and effective exchange of national DNA, fingerprint and vehicle registration data between the UK and individual EU Member States to aid law enforcement agencies in investigating crime and terrorism. DNA and fingerprint data continues to be exchanged through the Prüm system and the Agreement enables the exchange of vehicle registration data in the future, in line with precedents between the EU and Norway, Iceland, Liechtenstein and Switzerland. UK police authorities now rely on Interpol which will be the principal means to repatriate vehicles on finance which are illegally taken on to the European continent.
7. The arrangements include streamlined and time-limited processes for exchanging criminal records information and specify that information can be exchanged for crime prevention and safeguarding purposes. The Agreement allowed the continued exchange of criminal records between the UK and EU Member States through shared technical infrastructure. Nevertheless, the UK has lost access to some EU crime prevention databases such as the Schengen Information System which shares information on criminal suspects throughout the EU.
Financial services:
8. Either side can go further on prudential rules and both sides are committed to implementing international standards, in respect of anti-money laundering and tax evasion. The deal itself does not reference equivalence arrangements, although the EU has permitted EU banks to access to UK-based clearing houses until June 2025. Although the deal foresaw an agreement on equivalence arrangements, this was not achieved. In May 2023, the UK Government and the European Union reached agreement on a Memorandum of Understanding on Financial Services Cooperation. This facilitates information sharing on cross-border implementation issues and is crystallised in the form of the Joint EU-UK Financial Regulatory Forum between HM Treasury and the European Commission which shall meet twice a year. It was outstanding following the 2020 Trade and Cooperation Agreement.
Data Exchange:
9. In June 2021, the EU formally approved data adequacy arrangements with the UK. This ensures a continued seamless flow of personal data from between the UK and the EU/EEA without the need for firms to put in place additional arrangements in place with European counterparts. The UK, which now operates a fully independent data policy, had already recognised the EU and EEA member states as ‘adequate’.
10. EU adequacy decisions include a so-called ‘sunset clause’, under which decisions will automatically expire four years after their entry into force. After that period, the arrangements might be renewed if the UK continues to ensure an adequate level of data protection. During these four years, the Commission will continue to monitor the legal situation in the UK and “could intervene at any point, if the UK deviates from the level of protection currently in place.” Should the Commission decide to renew the adequacy finding, the adoption process would start again.
11. To replace the role of European Data Protection Board, the Information Commissioner’s Office (ICO) and the Department Culture, Media and Sport (DCMS) have agreed a memorandum of understanding to recognise the roles and responsibilities of DCMS and the ICO in carrying out adequacy assessment. This will facilitate the flow of personal data internationally.
12. The Data Protection and Digital Information Bill, an aim of which included the UK’s incorporation of the EU’s General Data Protection Regulation, was introduced in March 2023 and is currently being considered by Parliament. An earlier version was withdrawn.
Other Issues:
13. A number of VAT-related concerns have emerged as a result of the UK leaving the EU. The FLA has produced a note on the potential impact of Brexit on asset finance providers who assume liability for product performance and safety for goods manufactured within the EU.
14. The main challenge to emerge for members concerned the VAT treatment of leased assets and cars in two scenarios. The first is in respect of transfer of goods and services in and out of Northern Ireland (particularly transferring used vehicles from Great Britain to Northern Ireland for sale). The VAT Margin Scheme is currently used in this scenario. It is being replaced with a “Second Hand Motor Vehicle Export Scheme”, which was launched on 1 May 2023. The second issue relates to the potential tax liabilities that exist where leased assets used in mainland Europe (such as HGVs). This situation is being kept under review.
The Withdrawal Agreement
15. The UK’s departure from the EU on 31 January 2020 was enshrined in the Withdrawal Agreement (which was accompanied by a Political Declaration establishing a framework for future relations). It was predicated on a transition period of eleven months during which time freedom of movement rules continued to apply. It embedded reciprocal residency and social security rights after Brexit for those in situ. Anyone residing in the same EU country for five years was permitted to apply for permanent residence.
Repatriating EU legislation
16. The European Union (Withdrawal) Act, which repealed the European Communities Act 1972 and converted all existing EU legislation into UK law, received Royal Assent in June 2018. The Government also published some 800 pieces of secondary legislation aimed at repatriating EU-derived rules. These included the EU’s consumer credit information requirements (Reg 49(3)), for allowed firms until 30 May 2021 to remove references to the Consumer Credit Directive in their documentation.
17. In 2019, we reported to members a number of changes firms needed to make before the end of the transition period (31 December 2020).
18. Following consultation, HM Treasury (HMT) has published a statutory instrument to give effect to repatriation of the Securitisation Regulation.
UK Regulatory Guidance
19. The FCA website hosts a Brexit hub to help regulated firms and their consumers to understand the impact of Brexit. This includes considerations for firms after the transition period for FCA-regulated firms such as an end to passporting.
20. The Temporary Permissions Regime (TPR) came into effect following the end of the transition period on 31 December 2020, replacing the passporting arrangements. The PRA has extended the time period to process authorisation applications from EEA banks and insurers in TPR (currently up to the end of 2023).
21. For EEA firms which did not wish to continue to passport into the UK (and apply for the TPR), the Government created the Financial Services Contract Regime (FSCR). This allows such firms to continue to service UK contracts entered into prior to the end of the transition period (or prior to when they enter FSCR) for up to 15 years for insurance contracts and 5 years for other contracts in order to conduct an orderly exit from the UK market.
22. The Bank of England also hosts a portal on post-EU withdrawal.
23. The FCA and PRA have agreed memoranda of understanding with EU and national supervisors to ensure ongoing cooperation post-Brexit.
24. The UK Government’s Brexit guidance website includes information to alert businesses, the general public and EU citizens living in the UK to the changes applicable outside the EU. This includes videos providing information for businesses who import and export goods.
FLA action since the Referendum
25. We have highlighted to the Government and regulators that Brexit creates opportunities – for example, to reform of the Consumer Credit Act, elements of which derive from EU rules. We will continue to keep the potential impact of Brexit under review with members at committee meetings.
26. In the medium term, there may continue to be a read-across between regulatory activity in Brussels and action planned in the UK by the FCA and the PRA, though the latter decided in 2020 not to introduce European Banking Authority loan origination guidelines. UK regulators will be interested observers of the European Commission’s proposal for a revised Consumer Credit Directive, published on 30 June 2021 and which shall be adopted in 2023. This includes measures to simply information and advertising requirements, enhanced creditworthiness assessment provisions but also interest rate caps across the EU.
27. The FLA will therefore continue to engage with Brussels on behalf of members both directly and indirectly (via our membership of Eurofinas). We have discussed with senior officials from the European Institutions how best to ensure a continued UK voice in Brussels after Brexit and have invited members to alert us to any issues on which they would like the FLA to lobby.
Ed Simpson
Director of Government Affairs & Stakeholder Engagement