After a controversial referendum held in 2016, the British citizens voted for leaving the European Union (the “EU”).
In the following months and years, the government of the United Kingdom (“UK”) activated the procedures requested by article 50 of the Treaty on the Functioning of the European Union in order to leave the EU.
During these four years, the negotiation between the EU and the UK has not been really successful, and the possibility of a “no deal”, a situation in which the UK leaves the EU without an agreement, is likely to occur. Among others, the critical points are the jurisdiction of, the European Court of Justice (“ECJ”), fishing and agriculture and the Irish boarders.
This newsletter will try to summarise some of the main problems in case of a no deal.
Disclaimer: Readers of this newsletter should note that at the date of circulation of this article, the laws and regulations to which this newsletter makes reference to may be subject to further amendments which will not be reflected in this newsletter.
The transition regime and the current situation
In the last years, the EU and the UK have tried negotiating an agreement which aims to regulate the relationship between the EU and the UK after the departure, which will formally happen on 1 st January 2021.
In the meanwhile, UK agreed to adopt a transitory regime, which is regulating specific matters (jurisdiction of ECJ, Irish boarders and so forth) so that the transition from the EU to out of the EU is as seamless as possible.
During this period the UK is considered as it were still part of the EU allowing companies and people operating and residing in UK all the benefits and disadvantages of EU membership.
Since September 2020, the Prime Minister Boris Johnson, has taken a more hostile position during the negotiation and this put the negotiation at risk. But the EU stated that they are still willing to give room for negotiation.
However, it should be pointed out that the risk of a “no deal” is likely to materialise, as two months could not be enough to draft a satisfactory agreement.
In the “no deal” scenario, the EU and UK will regulate their relationship according to the World Trade Organisation agreements.
Brexit and financial institution
Currently, the passporting from your home jurisdiction to the UK, subjected to the British regulator, still applies.
After the 1st of January 2021, financial services must be ready to comply also with the Financial Conduct Authority (“FCA”), which is the British regulator, rules.
However, the EU wishes to grant a so-called “equivalent framework”, which would cover different matters such as central security depositories and central clearing counterparties.
That framework should not be intended as it were given the same benefits of a full EU membership: for example, it will not ameliorate the situation for banks, insurances and other financial institutions as it will not allow them to provide the services to the EU. Moreover, such framework can be revoked at any time, the EU reckons that the British legislation differs from the minimum European standards.
The EU foresees to adopt it around mid-2021.
Brexit and data protection
At the moment, the UK enjoys the free flow of personal data granted by the EU law and, especially, the main data protection act, the so-called General Data Protection Regulation (“GDPR”).
When Brexit is completed, the UK will be a third country for the purpose of GDPR. As such, the free flow of data will cease and transfer will be equated to an international transfer outside the European Economic Area.
In this case, there are two possibilities.
First of all, the UK could try to reach an adequacy decision, issued by the European Commission, to allow the data flow, which is a route that other countries, like Japan, New Zealand and Canada, have taken. This could be threatened by the fact that the UK seems to be interested in aligning with the Americans on the topic and giving more freedom from data protection compliance.
The second possibility, which is relevant for market operators, is to use other legal tools such as the standard contractual clauses.
In this last case it should be noted that the ECJ in its recent Big Brother Watch case has found that the lawful interception rules in UK are not compliant with the EU standards on the matter and they are interfering with the freedoms of data subjects. Therefore, even using the standard contractual clauses could not be enough, as according to the EU law, the legislation of the importer of data must be evaluated to avoid such interferences.
Brexit and intellectual property
Currently and till the end of the year, the UK is still part of the European Intellectual Property Office (“EUIPO”) and the European Patent Office (“EPO”).
After Brexit, a trademark or a design registered at the EUIPO will cover only the 27 EU Members. Therefore, if one needs to protect it in UK one must register it at the British Office directly or file an international application at the World Intellectual Property Organisation, asking to expand the trademark protection to the UK.
Furthermore, if one holds a .eu domain name, after January 2021, they will not be able to register or hold it and they should surrender it or it will be withdrawn. The only solution to this shall be to establish a business in the EU.
On the other hand, a patent poses no issues as the EPO is not an institution of the EU and the treaty which establishes it is autonomous (and, e.g., it includes countries like Switzerland, Turkey, Albania or Serbia).
Brexit and corporate rules
For now, the entities in UK can still enjoy the benefit of the single internal market of the EU.
However, in case of “no deal”, the EU will apply the localisation requirement, meaning that a company in the UK cannot operate directly in the EU market without being established inside the EU.
At the same time, branches of British companies will be considered as third-country branches and the appropriate rules will apply.
Subsidiaries, as they are considered as established in the EU, do not incur any problem.
In such scenario, a jurisdiction like Malta, as it very dynamic, digital and business-friendly and English speaking could be a valid ally for UK entities.
Last, contracts should be carefully reviewed as the choice of law and jurisdiction could be a matter of dispute as the UK will no longer apply the EU regulation on international private law, which means that the recognition and execution of British rulings shall not operate automatically and it will be regulated by each EU Member State law. It is highly possible that the UK will join the Hague convention of 2005, which deals with this particular matter, but for the time being, it is not possible to rely on that.
Brexit and marketing
Currently, specific rules apply to marketing activities in UK.
After the end of the transition period, a period of grace will be granted, but sectorial legislation will apply, i.e. marketing of chemicals products, medicines and so forth must comply with the relevant rules and authorities.
For example, in the case of investment funds, the investment fund manager will need to notify the FCA under the National Private Placement Regime (the “NPPR”) and can no longer resort to the marketing rules according to above
mentioned passporting regime. More rules and guidance will be provided by the FCA.
Brexit has surely shocked and changed the EU.
It is hard to foresee what will happen and most of it will depend on how much the UK wishes to be integrated in the EU: the closer, the more similar legislation they will adopt.
However, they want to leave the UE to not be bound by the EU law and this entails that the UK could simply choose other paths, e.g. intensifying its relationship with the Commonwealth Members or America.
In conclusion, the issue of Brexit should be carefully evaluated by professionals in order to minimise an already difficult situation.