Brexit implications for Czech financial sector
The Czech Republic is preparing for a hard Brexit, as the deadline for the United Kingdom leaving the EU is approaching. Earlier this year, the government proposed a bill on Brexit designed to mitigate the impact on British citizens and corporations staying/operating in the Czech Republic. What measures does the bill contain with respect to financial services? Could they affect Czech entities?
Institutions seated in the United Kingdom and operating on the financial market may currently use the so-called single European passport, in other words, they may provide their services in other EU member states based on authorisation acquired in the UK and do not have to undergo licence proceedings in these member states. After Brexit, however, this will not be possible and British corporations will have to apply for a licence just like other companies from non-EU countries. The Brexit Act focuses on financial institutions currently operating in the Czech market within the single European passport regime, as after a hard Brexit these will no longer fulfil the conditions for performing activities in the Czech market.
The law’s current wording provides for a transitory period for British financial institutions within which they will be authorised to perform activities necessary to settle their receivables and payables from/to clients. However, they will neither be allowed to enter into any new contracts nor to amend the content of existing contracts.
The transitory period will end on the date a deal on the UK exiting the EU is concluded, but no later than at the end of 2020. During this time, the UK financial institutions will be subject to the Czech National Bank’s supervision and liable for any breaches as other legal entities seated in the Czech Republic.
As is apparent from the explanatory report to the Brexit Act, the major implication for Czech entities will be the inability to change the content of existing contracts during the transitory period. All contracts with service providers who will lose their authorisation to operate in the Czech market should be reviewed, as the inability to amend contracts may cause serious business problems.
The bill was passed on an accelerated basis and the Chamber of Deputies is currently finalising the entire legislative process.