If you stayed up late on 31 January you would have witnessed the UK finally leaving the EU. A moment of history, indeed, but right now it may feel that not much has changed.
The Withdrawal Agreement (WA) came into force immediately, but several features of UK membership of the EU will be maintained during the so-called ‘transition period’ provided for by the WA (technically, this is not a transition period but rather a period of negotiation over a trade deal).
The legal basis for negotiations between the UK and EU will now be based on the same procedures applied for negotiations with other ‘third countries’ (under Article 218 of the Treaty on the Functioning of the EU).
The ‘transition’ period has been devised as ‘breathing space’ for the UK and the EU to try and negotiate a new relationship. It will last only until the end of this year (31 December 2020); theoretically, it could be extended but the UK Government has legislated to stop itself from seeking an extension.
For the remainder of 2020:
- most EU rules will continue to apply to the UK;
- the UK will still be part of the EU single market and customs union;
- existing trade arrangements and rules for travelling within the EU will continue to apply;
- the jurisdiction of the Court of Justice of the EU will continue as before; and
- the UK will continue to pay into the EU budget.
The UK, however, can no longer take part in EU decision-making and is no longer represented in the EU institutions. UK representatives can participate in meetings of EU bodies where discussions are relevant to the UK, but they will not have a vote.
There are other arrangements that cease to apply straight away too; for example, UK citizens resident in EU Member States will lose the right to vote and stand in local and European elections.
Also, the EU will be able to exclude the UK from EU activities where participation would grant the UK access to certain security-related sensitive information. However, the EU Common Foreign and Security Policy will continue to apply to the UK.
The EU’s international agreements still apply to the UK during the transition period, but the UK is now permitted to negotiate and ratify new international agreements with non-EU countries provided that these do not come into force before the end of the transition period.
Beyond transition
As things stand, the above arrangements will end on 31 December 2020, but with some areas of the UK-EU relationship still covered by the WA, including rights of EU citizens living in the UK and UK citizens living in the EU at the end of the transition period; together with aspects of Northern Ireland’s relationship with the EU.
The nature of arrangements for other aspects of UK-EU relationship will depend on what is agreed in the next 322 days (sounds like a lot of time, but remember how long it took to get to this point!).
From a financial services perspective, subject to the planned UK / EU free trade agreement being successfully negotiated (and covering financial services in line with political declaration), the prospective arrangements will entail:
- the free trade agreement;
- the regulatory regime (largely) of the ‘host’ state;
- benefits of any EU/UK ‘equivalence’ decisions; and
- measures, if any, to smooth the impact of exit from the single market.
| KEY POINTS FOR SPONSORS AND TRUSTEES |
| Most EU pensions law has already been incorporated into UK legislation and any changes will require further UK legislation, and the appropriate Parliamentary processes that precede it. |
| In the meantime, any concerns over investment strategy, sponsoring employer covenant and the resultant impact for scheme funding should be monitored as part of a scheme’s ‘integrated risk management’ (IRM). |
Want to know more?
This blog is based on a Commons Library Insight article. For more comprehensive information, click on the links below.