Insights Special Edition: Trade and Cooperation – The Final Phase of Brexit

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On December 24, 2020, the United Kingdom and the European Union concluded one of the largest trade deals in history, the EU-UK Trade and Cooperation Agreement (TCA). While the TCA regulates a number of important areas, it does not address in detail significant aspects of the UK economy, including the services sector, which represents the largest portion of the UK GDP. In this publication, we discuss key areas of the TCA of relevance to our clients, identify important issues that remain largely unregulated and examine other topics of note.

Corporate

ESG Rules: Will the UK Align With the EU?
As ESG regulation comes into force in Europe, financial services businesses operating in the UK and the EEA face the prospect of multiple layers of ESG-related regulatory compliance. In this article, we explore the potential challenges such businesses face.

Remuneration and Incentive Arrangements Under UK Law
UK employee and executive share plan and remuneration arrangements engage a number of different EU laws and regulations. Although some areas of uncertainty remain, the UK’s replication under UK law of many of the relevant rules has meant that administration of remuneration and incentive arrangements will continue largely unaffected, at least for now.

Recognition of Restructuring and Insolvency Proceedings
The TCA did not include language on cross-border cooperation and recognition regarding insolvency proceedings. As a result, debtors with a presence both in the UK and the EU face a challenging patchwork of different rules and regulations.

Navigable Challenges for Private Funds
Although the financial services industry was omitted from the terms of the TCA that outlined cooperation between the UK and the EEA, the private fund community has created a number of structures in recent years that should be helpful as it navigates the current uncertainty. Well-advised managers should be able to maintain the UK’s standing as a leading asset management jurisdiction.

Financial Regulation

Offsetting the Loss of Passporting Rights in Financial Services Regulation
The TCA does not provide a comprehensive free trade arrangement for financial services between the EU and the UK. UK firms which previously enjoyed unhindered access to the EU market under the passport must now establish a licensed entity in the EU or augment the use of an existing EU-based entity.

Impact on the Fintech Sector
The TCA sets out some obligations for parties to establish arrangements governing trade in digital services, but it does not offer substantive provisions to offset the fact that the UK no longer benefits from being part of the EU single market for financial services. EU and UK fintech firms must now grapple with two regulatory regimes where they previously relied on the EU-wide passport to provide cross border services.

Reaching a Consensus on (Re)insurance
Without clarity from the TCA on financial services, including (re)insurance, a UK participant may now access new EU business only via an EU-authorised subsidiary/branch or, in limited circumstances, on a cross-border basis that is subject to the requirements of the relevant EU member state.

Additional Regulation/Litigation

Level Playing Field Obligations: Insurance Policy or Tinderbox for Future Trade Disputes?
The TCA's level playing field provisions are among the most politically charged in the agreement. Requiring the parties to maintain current and future standards in nontrade-related policy areas, the provisions have the potential to be a source of disruption for future trade disputes if deployed. How realistic the application of this contentious provision is likely to be in practice, and the extent to which it creates challenges for both the EU and the UK, remains to be seen.

A Temporary Solution for Data Protection and Digital Trade
Brexit has raised many questions regarding the future of data protection and digital trade. The TCA reaches a positive, pro-business position on data protection and digital trade that should be welcomed by organisations navigating the new relationship between the UK and EU in these important areas.

Plus Ça Change ... Reframing the Tax Influences of the European Union
Though the UK and the EU have separated, the TCA provided a very long rulebook on how to co-exist. In addition to new tax policy enshrined within the TCA, some EU-derived tax rules set prior to Brexit will still need to be observed.

The Future of Employment Rights and Worker Mobility
Following the implementation of the TCA, companies must keep in mind the agreement's provisions relating to worker mobility, limitations on travel to perform services and recognition of professional qualifications in both the EU and UK. The potential for future changes to EU-derived employment rights in the UK is also subject to level playing field requirements.

EU-UK Antitrust Enforcement and Cooperation
The UK’s new relationship with the EU under the TCA brings material changes to the EU’s and the UK’s antitrust regimes. For mergers and anticompetitive practices, the two regimes will apply in parallel. More far-reaching is the new UK subsidy control regime that seeks to prevent EU-UK trade-distorting subsidies, and the potential for either the UK or the EU to impose stricter standards on the other under a controversial level playing field provision.

Civil Disputes: New Gaps, Old Solutions
The application within the UK of EU rules on jurisdiction and enforcement, including the Brussels and Lugano regimes, ended when the UK completed its formal separation from the EU. Litigants and drafters of commercial contracts must instead look elsewhere — for now, to the 2005 Hague Convention and English common law — for the rules on choice of jurisdiction and enforcement of judgments.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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