How will Brexit affect banking and payment services?

The withdrawal of the United Kingdom of Great Britain and Northern Ireland (United Kingdom) from the European Union (EU) will lead to significant changes affecting citizens, consumers, businesses and investors, both in the EU and in the United Kingdom. After the departure of the United Kingdom, as of 31 January 2020, the so-called “transition period” until 31 December 2020 began, until which date EU law shall apply fully in relation to and within the United Kingdom. After the expiration of the transition period, as of 1 January 2021, the United Kingdom will become a third country in relation to the performance and implementation of European Legislation in the EU Member States.

Among other significant changes, this will lead to the application of different rules regarding banking and payment services. Credit and payment institutions licensed by the competent authorities of the United Kingdom, which provide banking and payment services, as well as companies issuing electronic money, will no longer have licenses on the basis of which to provide these services and carry out their activities in the EU. They will lose the so-called “EU Passport” and will be treated as third-country entities with regards to the opportunity of establishing branches or having representatives in the Member States. This means that they will be no longer allowed to provide services in the EU on a cross-border basis using their current authorizations, issued by the United Kingdom, but will have to be authorized in accordance with the procedure provided for in the corresponding Member State.

Providers of financial services in the field of banking, payment and/or electronic money services, and in particular those offering or receiving cross-border services from or to the United Kingdom, should take appropriate actions to adapt their procedures, so that, after the end of the transition period, smooth payments and adequate protection of EU banks, their customers and funds are guaranteed.

In the field of consumer protection, when performing payments and managing bank accounts, it is important to highlight the following important points:

  • The transfer of funds from the United Kingdom to the EU in the form of credit transfers and direct debits in EUR will continue being performed within the Single Euro Payments Area (SEPA) beyond the end of the transition period, however, as of 1 January 2020, the rules applicable to SEPA credit transfers and direct debits to and from jurisdictions outside the European Economic Community shall become applicable to SEPA credit transfers and direct debits to and from the United Kingdom. The performance of the relevant transaction will require the provision of more information, and the lack of such information may lead to rejected transactions.
  • The Single Euro Payments Area (SEPA) is an area where consumers, companies and other economic agents have the opportunity to order and receive euro payments under the same general conditions, rights and obligations, regardless of their location within the EU. Given that EU law will not apply to the United Kingdom after 1 January 2021, payment service providers, licensed by the UK, can not be required to comply with certain rules for the protection of payment users, including the prohibition of charging additional fees. Although the United Kingdom will remain in the SEPA area, in practice transaction fees may be higher.
  • For transfers from/to the United Kingdom, after 1 January 2021, the requirements of Regulation (EU) 2015/847 on payments from/to non-EU countries will be applied, according to which a larger set of information is required, procedures for its verification, as well as for the identification of missing information and following actions in these cases. Under the Regulations’s rules, in the case of money transfers outside the EU (in this case the United Kingdom), a simplified regime for exemption from the provision and verification of information on the payer and the payee only applies to transfers up to EUR 1000. Larger transactions require more information, as well as additional rules for its verification.
  • Consumers from the EU can maintain a bank account in a bank licensed by the United Kingdom after the end of the transition period and it will be subject to UK Legislation, including with regards to deposit protection rules. Bank accounts in branches of subjects, licensed by the United Kingdom and in the EU, may be protected under the deposit protection regimes, applicable in the Member State concerned. According to Directive 2014/49/EU, EU Member States shall verify if the branches established in their territory by a credit institution, with a head office outside the EU, have a level of protection equivalent to the one, stipulated in this If the protection is not equivalent, Member States may provide for an obligation for those branches to join a deposit guarantee scheme. In this regard, it is important to note that EU law will not apply to other banking services – for example, EU rules on transparency, consumer protection and fraud prevention will not apply to payment cards.
  • Until the end of the transition period, consumers from the EU with an account in a bank licensed in the United Kingdom can request their bank to assist them in opening a payment account in an EU Member State, and according to EU law, the bank is obliged to provide the relevant customer with information on completed or current transactions for a certain period and to transfer the positive balance from the UK account of the user to one of the other accounts, opened by the respective user with a payment service provider established in the EU free of charge. Until 31 December 2020, EU consumers may also ask their bank licensed in an EU Member State to assist them in opening a current account with a bank from the United Kingdom. After the end of the transition period, these rules will no longer apply to the United Kingdom.

In view of the detailed regulation of the sector, stipulated in EU law, and the largely harmonized rules regulating banking and payment services, Brexit and the non-application of European law on the territory of the United Kingdom will have a significant impact at various levels – from payments between counterparties to the rules, relating to the activities of credit and payment institutions. In the context of the expiring transition period, the European Banking Authority has issued opinions and press releases, related to the preparations for the withdrawal of the United Kingdom from the EU, and the relevant changes in the regime should be suited to ensure smooth payment transactions after 1 January 2021 to and from the United Kingdom, as well as the protection of EU banks and their customers.