In a recently published Opinion, the European Banking Authority (EBA) has warned that there is a material possibility that the UK will leave the EU on 30 March 2019 without a transition period. Financial institutions must prepare for this possibility and take any necessary mitigating measures without delay.

Overview

On 25 June 2018 the EBA published an Opinion on preparations for the withdrawal of the United Kingdom from the EU (the ‘Opinion’), which concerns the activities of CRD IV credit institutions and investment firms, payment service providers, electronic money institutions, certain creditors and credit intermediaries (the ‘Financial Institutions’).

The Opinion is aimed at ensuring that competent authorities:

1. ensure that Financial Institutions are adequately considering the risks entailed by the possible departure of the UK from the EU without a ratified withdrawal agreement, and that they are putting in place appropriate plans to mitigate any risks in an appropriate timeframe; and
2. draw attention to the customer protection obligations of Financial Institutions in these circumstances.

Risk assessment and preparedness

According to the Opinion, competent authorities should engage with Financial Institutions to ensure that they follow the sequence of activities outlined in the Opinion in order to assess the implications of Brexit for themselves and respond to those implications where relevant.

In particular, each Financial Institution should:

• identify relevant risks, including risks around access to financial market infrastructures and funding markets, and mitigate those risks;
• ensure it has the correct regulatory permissions and associated management capacity in place ahead of time;
• assess and take necessary actions to address any impacts on rights and obligations of its existing contracts, in particular derivative contracts;
• identify where its data and those of its clients are stored and where relevant, transfer the location of the storage of that data and include data-processing clauses in new and existing contracts; and
• inform its competent and resolution authorities, as appropriate, of the results of its risk assessment, as well as the details of any plans it is putting in place to address these risks, and the timelines for the implementation of any actions envisaged.

Customer communication

Each Financial Institution also has a duty to communicate clearly to its customers where the latter might be impacted by the departure of the UK without a ratified withdrawal agreement. The information communicated should at least cover:

• the specific implications of the departure of the UK from the EU for those customers, based on the circumstances of those customers (depositors, debtors, etc.);
• information on the actions that the Financial Institution is taking to prevent any detriment to the customers;
• the implications for the customers from any corporate restructuring and preparedness activities; and
• the customer’s relevant contractual and statutory rights, including the right to cancel the contract and any right of recourse.

Competent authorities should ensure that Financial Institutions inform them of their communication with customers, including providing those authorities with the text of the messages that they are conveying where requested.