Why is this happening?
UK-based banks currently participate in the EU “passporting” system which enables firms that are authorised in any EEA state (all EU states, plus Iceland, Lichtenstein and Norway) to trade freely in any other EEA state with minimal additional authorisation. Passporting arrangements are the foundation of the EU single market for financial services and are what allows British expats living in the EEA to continue to use credit cards and bank accounts issued by UK-based banks.
Passporting is based on the single EU rulebook for financial services and is therefore not available for firms based in countries outside of the EEA. Once the Brexit transition period ends, the UK will no longer be part of the passporting system (unless, of course, it is allowed to continue to participate as part of any Brexit deal). As a result, UK-based banks are faced with trying to negotiate with every EEA state’s regulators if they wish to continue to offer services to individuals resident in that country. Continuing to operate will be more commercially viable for some banks than others.
PRA and FCA letter – what the Regulators have said
In a joint letter in October 2020 to the CEOs of both UK and International banks, the Prudential Regulation Authority and the Financial Conduct Authority reminded them of the steps that they needed to take in preparation for the end of the Brexit transition period. On the subject of the provision of retail banking services, the regulators had this message:
“If you have customers in the EEA, you should have plans in place on your approach to servicing your existing contracts with them. When implementing these plans, you should take steps to ensure you act in accordance with local law and national regulators’ expectations. Firms’ decisions should be guided by what is the right outcome for their customers and provide timely communications to enable them to make appropriate decisions and take necessary steps. In many cases, it would be a poor outcome for the customer for you to suddenly stop servicing them.
If you have identified customers who will be affected by a reduction or cessation in service provision, you should ensure that they are treated fairly and provide them sufficient notice to seek alternative arrangements in an orderly manner. You should also continue to take the necessary steps to manage any remaining operational risks.”
Those banks who intend to withdraw retail banking services for EEA residents should therefore have already written to their affected customers, giving them time to make alternative banking arrangements.
Potential impact on members/policyholders?
While this is primarily a matter for banks to resolve with their account holders, there are potential impacts for your members/policyholders. Unfortunately, there is no “one size fits all” approach because how a particular individual will be affected depends on:
- the EEA state in which they are resident, and
- the stance taken by their bank - some are withdrawing retail banking services in at least some EEA states.
Feedback from the Pensions Regulator is that the FCA are cautioning against pre-emptive action here, instead calling for providers to identify potentially affected customers, review operational readiness and be prepared to support customers should any be impacted.
EQP – continuing payments to EU residents
We already provide an overseas payments service to those pensioners/annuitants who have requested payment in Euros to their EU bank accounts. If your pensioners/annuitants decide they wish to be paid in local currency going forward we will be able to assist with this. This would just be an extension of our current service. Our administration teams are fully aware and we have developed a new mandate process to effect a smooth transfer.
To date we have not seen any material increase in pensioners requesting bank account changes, but we continue to monitor this. We will also be closely monitoring the payroll runs in early January in particular in respect of any rejected payments.
While there are many aspects of Brexit that will affect British expats living abroad and also EU nationals living in the UK, double tax treaties are unlikely to be directly impacted once the transition period ends. This is because each double tax treaty is signed between two countries involved and, in the case of the UK, directly with other nations, including those in the European Union.
Once the transition period ends, it is possible however, that other countries (including EU countries) may look to revisit their double tax treaties with the UK as part of future trade deals.