Recent events have introduced a degree of uncertainty for firms and consumers in the financial services sector. In addition to the economic complications created by the COVID-19 pandemic, financial services firms and customers will have to contend with disruptions created by Brexit.
Ireland’s banking industry is expected to be impacted by Brexit in several ways. Firstly, in terms of the impact on bank exposures to UK markets. Secondly, in terms of the impact of Brexit on the domestic economy. Lastly, in terms of changes on regulatory constraints on transactions between EU and UK firms.
What does the end of ‘passporting’ mean?
The operation of UK-based banks and financial services firms in Ireland will be affected by Brexit. The withdrawal of the UK deprives UK-based banks of the right to provide financial services throughout the European Economic Area (EEA) by way of Freedom of Establishment i.e., the establishment of a branch, or by Freedom of Services via the financial services ‘passport’.
Outlined in Article 49 and Article 56 of the Treaty on the Functioning of the European Union (TFEU), these freedoms are important for financial services firms operating in the EU.
The end of ‘passporting’ will require UK-based financial services firms operating in Ireland to receive authorisation from the Central Bank. In this regard, the Central Bank has confirmed that the majority of UK-based banks are prepared, however, it has urged customers of UK-based banks to contact their bank in order to be assured of authorisation.
With regard to consumer services, the impact of Brexit on the Irish banking industry is expected to be minimal.
The five primary banks operating in Ireland – Allied Irish Bank, Bank of Ireland, Permanent TSB, Ulster Bank and KBC – are regulated by the Central Bank and consumer services for these banks, including current and savings accounts, mortgages, personal loans, debit and credit cards, are expected to operate as normal. Online and mobile banking will remain virtually unchanged.
Payments & the Single Euro Payment Area (SEPA)
In terms of financial payments, the Single Euro Payments Area (SEPA) enables payment transfers in euro between accounts in SEPA countries, rendering cross-border electronic payments as simple as domestic payments.
Legally provided for in the Payment Services Directive (Directive (EU) 2015/2366) and formally introduced in the SEPA Regulation, SEPA harmonises the way in which electronic euro payments are made throughout the EU.
With regard to Brexit, the UK has committed to ensuring that it remains in-line with SEPA requirements and the European Payments Council (EPC) has approved the UK Finance application for the UK to remain as part of the SEPA scheme.
Consequently, transfers in euro between Ireland and the UK are expected to operate as normal with one or two additions, namely, that the address of the payer and the name of the payee are to be included on all transactions. The timeframe for payments to be processed is expected to remain consistent with current timeframes.
Savings & the Deposit Guarantee Scheme (DGS)
With regard to savings, consumer savings with banks in Ireland are protected by the Deposit Guarantee Scheme (DGS) which is administered by the Central Bank. The purpose of the DGS is to protect depositors in the event that a bank, building society or credit union is unable to repay a deposit. The DGS protects current accounts, deposit accounts and share accounts, protecting up to €100,000 per person per institution.
The DGS operates within the parameters of the EU’s Deposit Guarantee Schemes Directive (Directive 2014/49/EU), which ensures a harmonised level of protection for European deposits.
The European Banking Authority (EBA) participates in the protection of European DGSs by monitoring and reviewing deposit operations.
Consumer savings with Irish banks in the UK are protected by the Financial Services Compensation Scheme (FSCS), the UK’s DGS. The FSCS protects up to £85,000 per person per institution. Depositors with questions related to Ireland’s DGS are advised to submit them to the DGS online.
Mortgages & Loans
Mortgage and lending operations conducted by Irish banks and financial services firms are expected to be largely unaffected by Brexit.
Mortgage and lending operations conducted by Irish banks in the UK will operate in Sterling and are should not be impacted by Brexit.
At an EU-level, consumer protection with regard to mortgages is assured by the Mortgage Credit Directive (Directive 2014/17/EU) which is designed to ensure that consumers are adequately informed when applying for a mortgage.
Insurance & the Temporary Run-Off Regime (TRR)
In general, the operation of Irish insurance firms in Ireland should be unaffected by Brexit. The administration of funds, investment and insurance policies should be conducted as normal.
Irish-based insurance firms operating in the UK will, however, be required to register for the UK Government’s Temporary Permissions Regime (TPR), a scheme enabling EU insurance firms and funds to temporarily operate in the UK in the absence of ‘passporting’ rights.
With regards to UK-based insurers operating in Ireland, the Central Bank and the Department of Finance have established a Temporary Run-Off Regime (TRR). Specific to UK-based insurance firms and insurance intermediaries, the purpose of the TRR is to protect consumers by ensuring that existing insurance policies are serviced after 31 December 2020. The TRR applies to all life and non-life insurance policies written by UK-based firms in Ireland, however, excludes reinsurance policies. The TRR limits firms to exclusively administering existing insurance policies, as a consequence, mid-term policy adjustments will probably be excluded from the terms of the Regime.
The run-off regime is time-limited, operating for a maximum timeframe of 15 years. Despite the implementation of the TRR, customers of UK-based insurance providers are advised to contact their insurance provider to ensure continuity of service.
Pensions & the Convention on Social Security
The primary issue for Irish private pension schemes is one of investment performance rather than of investment administration. At an EU-level, the European Insurance and Occupational Pensions Authority (EIOPA) has provided a post-Brexit pension guide for consumers, outlining potential issues including additional costs and charges and limitations on policy changes.
In terms of state pensions, the Irish and UK Governments have guaranteed the payment of state pensions. The Convention on Social Security guarantees that individuals reliant on Irish contributions in order to qualify for UK pensions and individuals reliant on UK contributions in order to qualify for Irish pensions, will have contributions recognised. In addition to pensions, the Convention covers other social security schemes including child benefit payments.
A final consideration in terms of personal finance relates to tax – while direct taxes (taxes paid directly to the Government by the taxpayer) are unlikely to be impacted by Brexit, indirect taxes will be impacted. Indirect taxes are taxes are collected by intermediaries rather than the Government: In essence, they relate to the individual as a consumer. Examples of indirect include VAT, customs tax and excise tax.
From 1 January 2021, imports from the UK will be liable to duty and tax depending on the type and value of the item.
Where We Stand
Personal finance is of crucial importance and fortunately the direct effect of Brexit seems to be limited.
Irish banks operating in Ireland should experience limited disruption in terms of administration and operation, and customer services, including current and savings accounts, mortgages, personal loans, debit and credit cards, should proceed without issue.
Brexit will, however, have an effect on Irish financial services firms operating in the UK and on UK-based financial services firms operating in Ireland. While the Central Bank has confirmed that the majority of UK-based financial services firms have obtained authorisation to operate in Ireland, there are those that have decided to terminate operations. For this reason, it is important that Irish customers of UK-based banks and financial services firms contact their financial services provider – this applies to insurance funds and pension funds as well as primary banking accounts.