Continuing our series of articles focusing on Brexit and the impact to the Channel Islands, courtesy of Carey Olsen.
Today, we focus on the impact on financial services and data protection.
The Trade and Cooperation Agreement (TCA) is largely silent on financial services. The provisions included can be summarised as follows:
- a ‘prudential carve out,’ allowing the EU and the UK to impose their own financial regulations;
- a ‘best endeavours’ declaration to implement international standards in the financial services sector in respect of regulation, supervision and anti-money laundering and terrorist financing;
- a reciprocal agreement to allow newly established financial services from the UK or the EU to enter either the EU or UK, if it is a financial service which it would permit its own financial service providers to supply;
- a reciprocal agreement that UK and EU self-regulatory organisations (exchanges and clearing houses) must admit financial services suppliers from the UK and EU on a non-discriminatory and ‘most favoured nation’ basis; and
- a reciprocal agreement to permit access to UK and EU payment and clearing systems operated by public entities.
Passporting arrangements and equivalence determinations were not included in the TCA. Nor was there any extension to the transition period for financial services.
In this regard, the UK and the EU have made a political declaration with respect to financial services, agreeing both ‘to establish structured regulatory cooperation on financial services, with the aim of establishing a durable and stable relationship between autonomous jurisdictions’ and to ‘by March 2021, agree a Memorandum of Understanding (the ‘Financial Services MoU’) establishing the framework for this cooperation. The Parties will discuss, inter alia, how to move forward on both sides with equivalence determinations between the Union and United Kingdom, without prejudice to the unilateral and autonomous decision-making process of each side.’
In the UK, the Chancellor announced in November 2020 that the UK will be granting a package of equivalence decisions to the EEA states, including the Member States of the EU. The EU on the other hand, has stated that it ‘has taken note of the UK’s equivalence decisions announced in November, adopted in the UK’s interest. Similarly, the EU will consider equivalence when they are in the EU’s interest.’ This is perhaps unsurprising given the greater importance of financial services to the UK’s economy than that of the EU.
As regards the Islands, however, they are not (and have never been) a part of the EU and did not benefit from the UK’s membership (except for the provisions of Protocol 3 concerning trade in goods, as described above). This relationship did not change at the end of the Transition Period (the Islands remain as ‘third countries’ (i.e. non-EU members) for the purpose of financial services).
Whilst the Islands are not members of the EU, some aspects of EU legislation have been adopted by the Islands in compliance with the bilateral agreements in place between the Islands and Member States of the EU, including for example a number of tax information exchange agreements with Member States. In addition, the Islands are able to market financial services into the EU because those services currently meet the stipulations imposed by the EU. This was not affected by the end of the Transition Period.
The position is therefore that, as regards financial services, there is no immediate direct effect on the Islands, and we await the terms of Financial Services MoU to see how things may change.
Although the General Data Protection Regulation (EU) 2016/679 (‘GDPR’) does not have direct effect in the Islands, the Islands have both adopted legislation based on the GDPR, and certain controllers and processors will be subject to its extra-territorial reach.
The approval granted to the Islands as ‘third party countries with adequacy’ (Commission Decision 2008/393/EC) (which means that the EU Commission has recognised that the Islands have an adequate level of protection for transfers of personal data to and from the EU to take place without any further safeguards) is ‘grandfathered’ into the GDPR and is due for review by the EU in or about 2021. It is not anticipated that the adequacy status will change as a result of the end of the Transition Period.
The UK is pursuing an adequacy assessment from the EU and has committed to continuing to free flow data to the EU and all adequate jurisdictions. The Islands have agreed to extend their recognition of the UK as an ‘authorised jurisdiction’ until the end of 31st December 2021, as the UK has not (at the time of writing) received a data protection adequacy decision. This will continue to allow the free flow of data from the Islands to the UK.
Join us on Monday for the final part in this Brexit series, focusing on some of the opportunities that lie ahead for the Channel Islands.
Our thanks to the Carey Olsen teams in Guernsey and Jersey for sharing their expertise and advice.
- Guernsey: Christopher Anderson (Partner), Elaine Gray (Partner), Matthew Brehaut (Senior Associate), Julia Schaefer (Senior Associate)
- Jersey authors: Robert Milner (Partner), David Patterson (Senior Associate)