November 9, 2020 - On November 9th, Simon Crown of Clifford Chance (London) presented the LSTA webinar, “Brexit: The End of the Transition Period”, in which he explained the final step of the Brexit saga which is due to take place on December 31st. By that date, the UK must agree the rules for the new UK-EU relationship, and those new rules will impact trade and immigration between the two jurisdictions. Absent a deal, the UK will face a hard Brexit, a potential and unwanted situation about which we’ve heard since the results of the referendum were announced in 2016.
Although the UK formally withdrew from the EU on January 31, 2020, with a withdrawal agreement in place, that agreement only set forth the process to allow the UK to leave the EU. It did not set out the terms of their future relationship. The transition period is meant to be a bridge for the UK – a bridge between enjoying EU status and being on the outside. Financial institutions have all along been hoping for the best while planning for the worst – – planning for new licensing arrangements for the “just in case” situation of a hard Brexit. Fortunately, the City of London has remained resilient and has not shrunk over the past few years since the referendum; no single magnetic destination has emerged in its place in Europe. Although a few jobs may have migrated to other financial centers like Paris and Frankfurt, those jobs have been replaced in London with regulatory and cybersecurity related jobs.
Since February 1, 2020, the UK and EU have been negotiating the terms of trade which, if agreed, will be put in place on January 1, 2021. The parties have spent the months of the “transition period” trying to hammer out and agree on trade and immigration rules, including how the Northern Ireland border would be handled and trade terms relating to matters such as fishing, medical regulations, and security cooperation. Because of the legislative processes which must take place, including ratification by the EU Parliament, the sides really only have 2-3 weeks remaining to conclude their negotiations before they run out of time and a hard Brexit would occur on December 31st. In our interconnected world, the US election results and the pandemic are now impacting those negotiations. Because of the pandemic and the lockdowns imposed in the UK, Prime Minister Johnson may be less likely to think the UK can weather an economic shock like a hard Brexit. Further shocks, including tariffs and friction at the borders, would not be good for the UK’s economy. It is, therefore, hoped that outstanding issues will be agreed and ratified by year end.