The European Banking Federation has published a new fact sheet that explains which global trade rules will apply to European banks in the event of a no-deal Brexit. In the case of such a scenario, all trade between the EU and UK will be governed by the international rules agreed at the level of the World Trade Organisation, known as WTO. The fact sheet specifically addresses the WTO implications for banks.
Although the risks of the UK leaving the EU without an agreement in place to regulate its trade relations with the EU are not as high as they used to be, the paper addresses which rules will be applicable to regulate the future relationship between EU banks and the UK. In such hypothesis, the WTO rules will certainly apply from day one.
In particular, the following consequences are expected to occur:First of all, the General Agreement on Trade in Services (“GATS”), considered the WTO basic agreement on trade, including also the banking sector, will come into force. While the GATS does not replicate EU membership, it will still play an important role in case of a no-deal Brexit. GATS rules will be helpful to handle the absence of agreements:
1) The GATS will provide a baseline of protection: in principle, it will not allow the EU (or the UK) to discriminate against EU/UK banking services and service suppliers as compared to like services and services suppliers from other WTO members.
2) The GATS establishes key rules on recognition of prudential requirements: The WTO does not require its members to recognise the prudential requirements of other members. However, where it does, it must offer adequate opportunity to other WTO members for similar treatment.
3) It is important to distinguish between Member States opting for Mode 1 (supply of service from the territory of one Member into the territory of any other Member) and those opting for Mode 2 (supply of a service in the territory of one member to the service consumer of any other member state).
WTO banking commitments for (at least) the EU-12 Member States subscribing to the Understanding (BE, DE, DK, ES, FR, GR, IE, IT, LU, NL, PT, UK) are wide in relation to Mode 2, but not for Mode 1. The lack of market access commitments for Mode 1 has led to the prevailing view that the WTO cannot provide any basis for a right in principle to be able to provide banking services from the UK into the EU (or vice-versa).
The fact sheet was produced in cooperation with Herbert Smith Freehills LLP and with support of the Dutch banking association NVB .
Press release by the EBF
Publié le 29 octobre 2019