12 February 2019

Brexit: Amsterdam a new haven after Brexit?

After the infamous ‘leave vote’ in the Brexit referendum, the future of the UK is still uncertain. Lengthy interstate negotiations, hefty parliamentary debates and subsequent votes have till this day left us all to wonder whether and how Brexit will unfold. Recent development have revealed a heavily divided nation and are causing increasing uncertainty in political realms and the financial market. Every option between a new deal and a ‘no-deal Brexit’ is still on the table, causing turmoil in the financial market as the respective consequences vary wildly.

The latter, a no-deal Brexit, will likely result in a shift from London to the Netherlands as the center of the European financial trading infrastructure. The Dutch Authority for the Financial Markets (AFM) is therefore urging companies to follow the emerging trend and prepare accordingly, by applying for a license from the AFM.

In their recently published 2019 study, AFM Trend Monitor 2019, the AFM identified significant trends and risks. As an attorney specialized in regulatory and financial law, I am very interested if Brexit will be a “Third Country”.

Risks in the event of an abrupt no-deal Brexit

With the scheduled ‘Brexit deadline’ of 29 March 2019 time is scarce and action is of the utmost importance. A no-deal Brexit will likely disrupt the financial market and therefore strongly influence the capital market, European businesses and consumers, as without duly preparations UK suppliers will from one day to the next lose their access to the EU market. There will be some options, such as, register with ESMA, establish a Dutch branch office, establish a Dutch subsidiary. Another option is to rely on the initiative test (article 42 Mifid II). In that case, the services must not be advertised in the Netherlands (or addressed to the Dutch public) in any way whatsoever and no new services are offered to existing clients.

Risks for Dutch companies

Vice versa Dutch companies also need to prepare adequately for a hard Brexit, as they in turn could lose their access to the UK market. In their recent study the AFM found that lots of Dutch companies have not yet prepared sufficiently for the possibility of a no-deal Brexit and therefore encourages them to do so in time. The AFM states that lack of good preparation might cause them to infringe compliance with the license requirements, in case services are outsources to the UK.

Transformation of the European capital markets

The AFM also acknowledges the growing amount of financial institutions transferring to elsewhere in Europe. Equity and bond platforms tend to transfer to the Netherlands while banks conversely lean toward Frankfurt and Paris while Portfolio managers usually relocate to Luxembourg or Dublin.

The Netherlands to become the center for financial trading infrastructure

Distilled from the interviews they conducted the AFM stated that it is likely for 30 to 40 percent of financial trading in Europe to allocate to the Netherlands. And in doing so, making the Netherlands the financial trading center of Europe.

Dutch attorney Brexit: Consequences for supervision

This major shift however, provides great safeguards for ‘uniform and effective supervision’ next to a high level of investor protection and governance. The AFM nonetheless states that this would not lead to an expansion of their tasks but that additional investments in knowledge, capacity and support services are however a necessity.

Key points for 2019 Brexit

In their study, the AFM subsequently lists Brexit as a large political uncertainty and the ‘most urgent risk’ to the financial markets. The AFM states they aim to incorporate these trends and risks into policy and supervisory activities, which they plan to present in January 2019.

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