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Brexit Update: Financial markets: Exemption for investment firms

22 juli 2019
Bankrecht & financieringen

The Netherlands Authority for the Financial Markets (Stichting Autoriteit Financiële Markten, “AFM”) provides on a regular basis a so called Brexit update. With Brexit being extended until the 31st of October 2019 uncertainty in the financial markets stays. After the publication of the extended scope of the so-called “Section 10 Exemption” in the event of a hard Brexit (the no-deal scenario) (the “Ministerial Regulation”), which was enacted by means of a ministerial regulation by the Dutch Secretary of Finance to on 4 February 2019 a number of UK investment firms contacted the AFM and applied for an exemption. As soon as we have a clear view on when Brexit takes place, it is expected that the AFM will inform UK investments firms about their applications and exempted status.

In short, pursuant to the Ministerial Regulation, certain investment firms with registered offices in the United Kingdom (“UK”) may apply for the Section 10 Exemption as a result of which they will be exempt from the obligation to obtain a license from the for the provision of investment services to eligible counterparties or per se professional investors or to trade for own account in the Netherlands.

Third country

If Brexit takes place the UK  will officially leave the European Union (“EU”). At present there is still a great deal of uncertainty about a possible deal between the UK and the EU, the actual date of Brexit and whether or not Brexit will take place at all. In the event of a no-deal scenario, the UK will qualify as a ‘third country’ in the Netherlands.

If the UK withdraws from the EU without a withdrawal agreement being reached, investment firms with a registered office in the UK can no longer provide investment services (beleggingsdiensten verlenen) or perform investment activities (beleggingsactiviteiten verrichten) in the Netherlands by means of ‘passporting’ their license obtain from the Financial Conduct Authority (“FCA”) into the Netherlands. Without a withdrawal agreement in place, investment firms with a registered office in the UK are obliged to obtain a license from the AFM in order to be authorized to provide investment services or to perform investment activities in the Netherlands.

Temporarily Exemption

In order to limit the possible negative effects of a no-deal scenario, the Ministerial Regulation will temporarily extend the scope of the Section 10 Exemption under the Exemption Regulation under the Financial Supervision Act (Vrijstellingsregeling Wft) (this the so-called third country regime). In the event of a no-deal scenario, FCA supervised investment firms with a registered office in the UK which solely (a) provide investment services to eligible counterparties or per se professional investors or (b) trade for own account may rely on the Section 10 Exemption. As a consequence, such FCA authorized investment firms will be exempt from the obligation to obtain a license from the AFM.

Investment firms that rely on the Section 10 Exemption are also largely exempt from ongoing prudential supervision (prudentieel toezicht) and market conduct supervision (gedragstoezicht) in the Netherlands.

The temporarily extension of the scope of Section 10 Exemption shall only be in force in the event of a no-deal scenario and until 1 January 2021 or at the latest until two years after the temporarily exemption has come into force.

How can we help

We would be happy to discuss how we can help you with your Brexit planning, execution of those plans and how, and perhaps more important when, to apply for a Section 10 Application in the event of a no-deal scenario.