On 31st December 2020, the Transition Period will end, and the UK departure from the EU will come into force.
While discussions continue around life past 2020, there remains much uncertainty about what the final ‘divorce agreement’ will look like, and how this will impact British citizens living in EU member states.
In a recent announcement, some of the biggest UK banking providers have warned that, without post-Brexit negotiations being finalised, they may be forced to close bank accounts held by British nationals living in Europe.
Time is of the essence, and such negotiations continue to show little sign of progress; so what can expats do now to prepare for this potential eventuality?
International Banking and the Brexit Withdrawal Agreement
While the Withdrawal Agreement, formalised in January 2020, sets out the terms of the Transition Period, final terms post-transition are yet to be agreed. The latest update this week was a meeting of the General Affairs Council, where Ministers discussed conclusions ahead of the special European Council scheduled for 1st – 2nd October 2020.
Those ongoing negotiations centre around factors such as:
- Customs controls between the UK and the EU
- Controls between Britain and Northern Ireland
- UK state aid rules for businesses
- Tariffs and quotas between individual nations
- Environmental protection policies
With a realistic deadline of October for any agreements to be ratified in time for the end of the Transition Period, time is extremely short.
The EU requires two months for formal ratification processes, and therefore if terms are not agreed by the end of October at the latest, the UK will depart the EU without a deal.
Why UK Banking is Affected by Brexit
It might seem odd that UK banks are warning of potential account closures. However, this all centres around rules around ‘passporting’.
This phrase refers to the practise throughout the EU, whereby banks and financial service providers can trade freely throughout other EU/EEA authorised states. In essence, the ‘passport’ means that members of the single market enjoy freedoms when it comes to banking transactions. When the UK leaves the EU, it will no longer be permitted to apply the EU rulebook to financial services. Non-EU firms must adhere to strict regulatory barriers to cross-border banking and investment when dealing with customers and other organisations in EU member states.
After 31st December 2020, the UK will become a country outside of the EU, and without a deal dictating the terms under which British banks and finance providers can trade, they will be left in limbo. They will have to apply the non-EU regulations to their transactions until terms are negotiated, agreed and ratified. UK banks will have a choice about abandoning expat accounts – but will be forced to either apply for new permissions or close accounts altogether.
It will be illegal for financial service providers to continue serving British customers in the EU, without having a license that allows them to do so.
Which Banks are Closing UK Expat Accounts?
Currently, announcements have been made from:
- Bank of Scotland
- Coutts & Co
These banks have started contacting British customers living overseas to advise that their accounts will be closed on 31st December 2020. Natwest and Santander have advised that – as yet – they do not plan to close accounts, but are ‘considering their options’.
This may be dependent on an agreement being made in time for ratification, permitting UK banks to continue to provide cross-border services to expat nationals living in Europe. However, the complication for many financial services providers is that, without a blanket agreement, it will be too costly and complex to apply for individual licenses for every EU member state.
Each country has its own specific rules. Therefore, banks would need to try and negotiate the financial frameworks and banking regulations for each of the 27 member states to apply for the correct licenses, and adjust their banking practises to comply with all those local laws. It seems likely that British banks will continue to provide banking services to expats in some EU countries, where they have sufficient customers to justify the cost, and where the regulatory demands are possible to meet.
In European countries with complex laws, it may be impossible to comply with the licensing regulations, or the cost of doing so may be prohibitive.
UK banks may:
- Write to expats giving notice of account closures.
- Apply for permission to continue operating in some countries.
- Decide to close accounts in some member states.
For example, the Lloyds Group (including Halifax and Bank of Scotland) have contacted 13,000 expats living in Holland, Slovakia, Germany, Ireland, Italy and Portugal. They have not yet confirmed whether account closure notices will be served on UK expats in other EU member states.
Preparing for Brexit for UK Expats
Here at Chase Buchanan, we support British expats living throughout the EU with financial planning, wealth management, retirement budgets and investment expertise.
Our professional teams recognise the challenges that Brexit presents, and the concerns this gives to expats who still do not know whether an agreement will be reached, or whether their accounts and finances will be impacted by the failure of the UK government to reach an agreement with the EU. Until further announcements are made, it might feel impossible to make an informed decision. However, we advise taking action now to avoid having to react fast when the Transition Period reaches an end.
By reviewing your financial affairs, identifying ‘at-risk’ accounts, and adopting a future-proof strategy to protect your assets, you can avoid any of the stress and time-pressures likely to be experienced by expats who leave their accounts in situ pending further detail. Whether negotiations reach a successful conclusion is anybody’s guess. Still, given that only a few weeks remain until the deadline for new banking guidelines falls due, prudency is key to safeguard your finances.
Options such as transferring UK assets, revisiting investment strategies and aligning your accounts with EU institutions may be a lucrative option. This prevents being stuck in the inevitable backlog of applications once the impact of Brexit hits, and may be a cost-efficient way of taking advantage of free movement rights in terms of banking transactions until they expire on 31st December 2020.
With teams in Cyprus, Spain, Portugal, France and Belgium, as well as in the US, Canada, Isle of Man and our Administration Centre in the UK, Chase Buchanan is ideally positioned to help you protect your finances, and be prepared for Brexit well in advance. Get in touch with our regional offices.