The U.K. and the EU reached a deal that, from 1 January 2021, governs key aspects of the trade relationship between the two parties. The Trade and Cooperation Agreement (“TCA”), as it is formally named, was approved by the U.K. Parliament on 30 December 2020 and its ratification by the EU Parliament is pending. Broadly, the TCA covers trade in goods and services, judicial cooperation, environmental cooperation, digital trade and intellectual property. 

The parties issued a joint declaration which states that they will agree, by March 2021, on a Memorandum of Understanding which will establish the framework for financial services regulatory cooperation.


Passporting rights to and from the U.K. ended at the conclusion of the transition period. As a result, the U.K. has now become a third-party country for the purposes of EU legislation and U.K.-authorised financial institutions no longer have immediate access to EU markets. 

The passporting system will be replaced by one known as the EU system of equivalence. This means that the EU will have to be satisfied that the relevant regulatory or supervisory regime of the U.K. is of equivalent standard to that in EU law. So far, the EU has been reluctant to make equivalence determinations in respect of the U.K. regime and has only granted two: an 18-month equivalence determination in respect of U.K.-based derivatives clearing houses, and a 6-month equivalence determination in respect of settling transactions in Irish securities.

In the U.K., the entity responsible for equivalence determinations is HMRC, which will receive technical advice where necessary from the Financial Conduct Authority (“FCA”), the Bank of England, and the Prudential Regulation Authority. Under the Temporary Permissions Regime, eligible EEA firms and funds which had notified the FCA prior to the end of the transition period can continue to operate under their previous passport permission following the end of the transition period. They can do so for a limited period, whilst seeking U.K. recognition to continue their activities in the U.K. Passporting rights will continue for firms operating between the U.K. and Gibraltar.

There are two EU legislative instruments which provide for direct market access rights for third-party countries: the Markets in Financial Instruments Directive (“MiFID II”) and the Alternative Investment Fund Managers Directive (“AIMFD”). Under Article 39 of MiFID II, passporting might still be an option for investment firms whose home regulator has rules equivalent to EU regulations and who service sophisticated clients (as long as they registered with ESMA); firms will have to set up a branch in an EEA (EU members, Liechtenstein, Norway and Iceland) state if they wish to service less sophisticated clients.

Under Article 42 of AIMFD, non-EEA AIMFs can market to EEA professional investors on a private placement basis, if certain conditions of transparency are met and there is appropriate cooperation between the home regulator of the AIMF and the regulator of the EEA state where the fund is managed.

In terms of other possible avenues for provision of services, ESMA has cautioned against the use of reverse solicitation practices, and criticised firms using methods such as asking clients to click pop-up boxes which stated that any transaction happened at their initiative.


Holders of a funded participation under a financial entity relying on a U.K.-authorised passport might consider the following, particularly in jurisdictions which require a banking licence to perform certain lending activities:

  • What action has the financial entity taken? Has it merged with another entity or transferred its holding to another entity? If so, is it necessary to consider that entity’s regulatory status, or reassess KYC/AML and credit risk?
  • If the licensing status of the grantor of the funded participation no longer meets regulatory requirements in the jurisdiction in which the participated loan was entered into, a transfer of the loan which is subject to the funded participation may be required. Whilst the LMA form of Funded Participation Agreement permits a transfer by the grantor, it does not provide a form of transfer certificate in that respect. Furthermore, do the terms of the governing credit agreement permit for the transfer of the underlying loan in the case of a change of grantor? Consideration might also be given to any ancillary transfer-related issues, such as perfection requirements in respect of transfer of collateral and related costs.



BaFin issued a general administrative order which allows a run-off for insurance undertakings and institutions for occupational retirement provision ("IORPs") that have existing business in Germany by engaging in cross-border activities under their U.K. passport. Such entities may conduct and run-off existing business, on the condition that they must terminate contracts as early as possible.


The Bank of Italy issued a communication on the provisions contained in Decree Law 183/2020. Article 22 provides that U.K. banks operating through a branch in Italy, which have applied before the end of the transition period to be authorised as third-country firms, can continue to provide the services that they provided prior to the end of the transition period until they learn the outcome of their new authorisation application and for no longer than six months after the end of the transition period. U.K. banks cannot take on new clients or amend existing contracts until the new authorisation is issued. 

U.K. investment firms providing investment services in Italy will not be able to provide such services if they have not received authorisation prior to 31 December 2020, as per the relevant November 2020 communication issued by the CONSOB.


The ACPR issued a communication on 4 January 2021 to remind U.K.-authorised financial institutions (including Gibraltar-based ones) of their obligations towards customers residing in France, which include providing personalised information in respect of the continuation or termination of services. They are requested to make explicit reference to this information on their website and, if they cease their activities in France, to specify the rights of their customers in order to avoid any subsequent damage being borne by them.

The AMF and the ACPR also stated on 22 January 2021, that as of 1 January 2021, with the loss of European passporting rights, entities based in the U.K. are no longer authorised to provide investment services in the EEA, unless they have set up an authorised branch or subsidiary in the EEA. Otherwise, they would be facing administrative or criminal proceedings under the laws of each Member State. The two supervisory authorities also stressed that entities that have relocated to the EEA must have sufficient personnel to ensure prudent risk management and effective supervision of their activities. 

Please contact Emmanuelle Naulais and Marta de Franciscis with any queries regarding the foregoing discussion on the approach to Brexit in France.


Article 13 of RDL 38/2020 states that contracts for financial services provided in Spain by U.K.-authorised institutions will remain valid, as long as they were entered into prior to 31 December 2020. From 1 January 2021, U.K.-authorised institutions will be considered third-country firms and will have to apply for new authorisation in order to renew existing contracts, enter new contracts, conduct activities which trigger licensing requirements whilst managing contracts, or amend contracts in a manner that fundamentally affects the obligations of the contracted parties.

Any authorisation granted by the U.K. competent authority will remain valid until 30 June 2021, whilst firms complete the termination of pre-existing contracts or assign them to appropriately authorised or passported entities that can provide financial services in Spain. 


Goldman Sachs has moved senior bankers to Frankfurt and doubled its Spanish headcount. Asset managers have established management teams in continental Europe to ensure access to local regulators and clients. Some have set up offices in different jurisdictions: Eaton Vance, Standard Life Aberdeen, and Legal & General have all set up offices in Dublin. In the insurance sector, broker Aon plc shifted its parent company’s jurisdiction of incorporation to Ireland. Overall, GBP 1.2tr is estimated to have been moved to the EU.


The EU Interest and Royalty Directive (“IR Directive”) removes the need for companies to deduct withholding tax from cross-border payments of interest and royalties between EU ‘associated companies’ (generally, a company is ‘associated’ with another if one holds at least 25 per cent of the share capital or voting rights in the other). As the IR Directive is no longer available to U.K. companies, it means that payments of interest from an EU subsidiary to its U.K. parent may now be subject to withholding tax in the EU country where the subsidiary is based. It may be that the U.K. will reach agreements with some individual countries that replicate the benefits that were available under the IR Directive. For now, any U.K. company that is due to be receiving a payment of interest from an EU company could consider whether it will be impacted.

Recent updates to HMRC guidance confirm that interest payments from a U.K. company to an ‘associated company’ in the EU may still be made gross and without U.K. withholding tax in accordance with U.K. domestic legislation. A claim may be made to HMRC to confirm the application of this benefit.

The EU Parent-Subsidiary Directive operates similarly to the IR Directive but applies to withholding tax on dividends. As for interest payments, any U.K. company that is due to be paid dividends from EU subsidiary might consider whether it will be impacted. 

The U.K. does not impose withholding tax on dividends and so no issue arises on the payment of dividends by a U.K. company. 

Some EU resident borrowers (such as those in Italy) are able to pay interest gross and without withholding tax to 'financial institutions' in EU member states by exemption under their local laws. U.K. banks will no longer fall within such exemptions and so withholding taxes may now apply.


As noted in Brown Rudnick’s Trade Alert Issue No. 33, the LMA has revised its Terms and Conditions to incorporate a specific contractual recognition of bail-in clauses. In addition to that, the LMA has provided revised versions of secondary confidentiality letters to reflect the recognition of bail-in clauses.



Matalan, the U.K. retailer, reported a 21.5 per cent decrease in revenue in the Q3 period which ended 28 November 2020, after COVID-19 disrupted trading in November. The company completed the sale and leaseback of its head office on 18 December 2020 for GBP 25m; the property was sold to an entity owned by John Hargreaves, Matalan’s owner. The company used the proceeds to reduce its overall indebtedness by servicing a pre-existing revolving loan facility and a revolving loan facility accessed through the Coronavirus Large Business Interruption Loan Scheme.

 PREMIER OIL PLC (“Premier Oil”)

Premier Oil, the North Sea oil producer, announced on 12 January 2021, that all resolutions in relation to the merger with Chrysaor and the re-organisation of Premier Oil’s debt were approved. Premier Oil also secured Vietnam antitrust approval. Scottish courts approved the restructuring plans on 25 January 2021. The creditors’ meeting is expected on 22 February 2021, while the Restructuring Plans sanction hearing is expected to take place on 19 March 2021.


Vue Entertainment announced that it had secured waivers of covenants on debt due November 2022. Vue reported that there is uncertainty as to whether it would be able to maintain its GBP 30m liquidity benchmark. Chief Executive Tim Richards told analysts in a call that box office revenue would return to 2019 levels not earlier than the second half of 2022.

VALARIS PLC (“Valaris”)

Valaris, the offshore driller company, commenced a Chapter 11 process on 19 August 2020. The company attracted scrutiny by the U.S. Trustee’s office in November 2020, over plans to pay executives bonuses. The company secured court approval to pay those bonuses on 30 November 2020, despite the judge indicating that there could be merit in the federal government’s concerns that performance targets were not sufficiently difficult. In January 2021,Valaris sought an extension of its exclusivity period in respect of submitting a restructuring proposal, whilst a judge rejected efforts by lenders for a competing proposal.

TUI AG (“Tui”)

Tui, the tourism group, announced early redemption of a senior bond of EUR 300m, in accordance with the financing package that it agreed on 2 December 2020 with investors, the German federal government, and banks. The December plan includes a EUR 400m guarantee credit facility which is supported by the federal government. The company stated that the plan would ensure stability at a time of increasing travel restrictions due to Covid-19 and that the arrival of vaccines would signal a removal of restrictions and improve the company’s working capital and liquidity.

GARRETT MOTION INC (“Garrett Motion”) 

Garrett Motion, the auto-parts maker, filed for bankruptcy protection in September 2020. On 11 January 2021, Garrett Motion announced that it agreed to a shareholder-backed re-organisation plan presented by the majority shareholders. An amended plan and disclosure statement were filed on 22 January 2021, with a confirmation court hearing scheduled for 6 April 2021. On 26 January 2021, minority shareholders proposed an alternate restructuring, challenging the planned arrangement supported by the majority shareholders.


The Recast Insolvency Regulation (“RIR”), which is based on reciprocity, will cease to apply to new U.K. proceedings (but continues to apply to cases which were opened before 31 December 2020). Accordingly, there will be no automatic recognition of U.K. insolvency proceedings in the EU and recognition will depend on the private international law of each EU member state. This raises the risk of competing insolvency proceedings between the U.K. and the EU and creates increased uncertainty for English insolvency practitioners seeking the assistance of EU courts.

The recognition and effect of EU proceedings in the U.K. will be governed by the Cross-Border Insolvency Regulations 2006 (“CBIR”) which implement the UNCITRAL Model Law on Cross-Border Insolvency in the U.K. and common law rules on recognition, giving decisions in cases such as Bakhshiyeva v Sberbank of Russia & Ors [2018] EWHC 59 increased importance. Here, the court held that the CBIR cannot be used to obtain recognition of the discharge of English law governed debt under foreign insolvency.

For more information, please see the full article here.

Under Rome I, the courts of EU member states will continue to recognise the effect of compromise of English law debt under a U.K. scheme of arrangement. However, U.K. courts are unlikely to recognise the compromise of English law debt effected under an EU insolvency proceeding.

The U.K. has applied to accede to the 2007 Lugano Convention. If the U.K.'s application is successful, it should, in principle, ensure the continuation of the jurisdictional tests applied under the RIR prior to opening proceedings. In turn, this may lead to courts throughout the EU recognising the compromise of foreign law debt under a U.K. scheme of arrangement on the basis that the relevant tests have been applied and met.


Please contact Louisa WattIden Asl, Andrew Baker or Menelaos Karampetsos with any queries regarding this month's Trade Alert.