Germany’s Federal Financial Supervisory Authority (BaFin) has published a draft law aimed at preserving market access for UK firms offering banking, financial or insurance services under the European passport regime should Brexit negotiations culminate in a ‘no-deal’ scenario.
Amendments to the German Banking Act would, in a no-deal scenario, empower BaFin to treat UK banks and investment firms currently providing services under the European passport regime as if they continued to hold an EU passport post-Brexit.
This may be applied for a period of up to 21 months after the Brexit date, corresponding to the time frame currently discussed between the UK and the EU to allow for a transition.
While this draft law put forward by BaFin ensures contract continuity for existing financial transactions post-Brexit, deals entered into after 29 March 2019 will only be considered if they are closely connected to transactions that existed at the time of Brexit.
The draft law does not define “close connection” and does not specifically address services provided on a continuing basis. However, based on the reasoning of the draft law, hedging of pre-Brexit transactions or certain life-cycle events would be in scope.
In addition, a proposed amendment to the Insurance Supervision Act would give BaFin the possibility to grant a transitional arrangement for a period of 21 months after the Brexit date to protect insured persons and beneficiaries.
The intention is to enable insurers based in the UK to transfer or terminate existing contracts within a reasonable time frame to a company within the EEA or to meet the necessary prudential requirements for an orderly run-off of such contracts.
The draft law grants wide discretionary powers to BaFin when implementing the transitional regime. Therefore, it does not provide for a general automatic continuation of the use of the EU passport.
However, it seems likely that BaFin would issue a general decree applying the transitional period to passported UK institutions, as this would allow prompt and effective action in case of a no-deal Brexit.
It remains to be seen whether BaFin will require the relevant institutions to notify it of their intentions to rely on the transitional measures, in order to keep control over such institutions and the related transaction volumes.
