Changes after Brexit that are important to financial services users
From 1 January 2021, the law of the European Union (EU) will no longer be effective in the United Kingdom (UK). From that date, the UK financial institutions without a valid permission of the EU financial market supervisory authorities will not be entitled to provide services in the EU anymore.
From 1 February 2020, the UK ceased to be a member of the EU. However, until 31 December 2020, the UK is subject to the transition period, during which it still follows the EU law and complies with the EU rules. After the end of this period, the UK will acquire the status of a third country, despite the result of negotiations.
The Bank of Lithuania would like to draw attention of financial services users to the fact that providers of financial services have to explain adequately and comprehensively to their EU customers about accessibility of their services and their continuity as well as potential changes on 1 January 2021, after the end of the transition period. The list of companies that have the right to provide services in Lithuania is available here. If customers do not receive information from their service providers, we recommend contacting their financial institutions themselves with a request to provide information on continuity of services.
What changes are awaiting consumers in case of no-deal Brexit?
Insurance services. The provision of insurance services is directly related to the risk assumed by the insurer and its location. This location is established according to the place of existence of the insurance object, for example, according to the location of a real estate object, the place of registration of a vehicle or the place of residence of an insurance policy holder. Thus, if the insurance risk is located in any EEA country after Brexit, the UK insurance company that intends to insure such risk, will need to have a branch established in that EEA country.
Payment services. UK financial institutions wishing to continue the provision of financial services in the EU will have to offer these services through entities established in the EU. The majority of the UK financial institutions that plan to continue active promotion of their services in the EU, have established respective entities and acquired licences to provide their services in the EU.
If the UK financial institutions decide to terminate their activity in the EU, they must terminate their agreements with the EU customers without infringing consumer rights by the end of the transition period. Consumers that have bank accounts in such institutions may keep these accounts (more details are provided here). However, consumers should take into consideration a potentially different protection of their deposits (more details are provided here). EU consumers wishing to close their account in a UK financial institution, have to inform their payment services provider about it and indicate the bank account for the transfer of funds from the account being closed.
From 1 January 2021, the requirements applicable to payment orders made between the EU and the UK shall change (more details are provided here).
Investment services. From 1 January 2021, financial brokerage firms and management companies established in the UK will be entitled to offer and provide services to non-professional investors in the EU Member States, including the Republic of Lithuania, only after establishing a branch in that Member State where it intends to pursue its activities. Please note that the legal acts do not prohibit non-professional customers and customers that are recognised as professional, to apply at their own initiative to financial brokerage firms established in third countries regarding the use of investment services provided by them. However, in such case the requirement to establish a branch to provide investment services to these persons, including relations concerning the provision of these investment services, is not applied to this third country company. Investors are urged to adequately assess the risks related to such decision.
It should be noted that the initiative of a non-professional customer or a customer recognised as professional does not grant the right to the third country company to offer new investment products or services to this customer in any way other than through the branch established in the Republic of Lithuania. Please note that the provision of such services shall be regulated according to the legal acts of the third country, whereas disputes arising with regard to compliance with the conditions of the services provided and/or the contract should be settled by applying to the supervisory authority of the financial brokerage firm established in the third country.
Impact of Brexit on the protection of financial services users
After Brexit the Bank of Lithuania shall continue to settle disputes between consumers and financial market participants established in the UK, when the law of the Republic of Lithuania is applied to the agreements on the provision of services concluded between them, except for the cases when the Bank of Lithuania is not authorised to settle the dispute due to other circumstances.
How to avoid becoming a victim of fraud during the transition period and after it?
We would like to note that, as the end of the UK’s transition period for leaving the EU approaches (it ends on 31 December 2020), fraud according to certain schemes to take advantage of the Brexit situation may become more frequent. Therefore, we would like to remind and advise you about the following:
- carefully and closely assess all unexpected phone calls, emails and notifications;
- a bank or another company that provides financial services will never request your PIN code or password and will never ask you to transfer money to another account;
- please note that a legally operating bank or financial services company will not push you to act fast – it will always give you time to think everything over and provide all necessary or requested information;
- always check the company’s contact details and the link to its website and review the lists of fraudulent companies published by the Bank of Lithuania (more details are provided here) to make sure that you communicate with a real and legally operating company;
- if you receive a suspicious email, expand the sender’s address field at the top of the email – if it is a fraudulent email, the sender’s email address may include random numbers or be written incorrectly;
- please note that fraudsters often clone emails and email addresses so that they look real;
- if you have doubts about the content of phone calls or emails, please check the information by applying directly to your financial services provider. Please always use contact details that you can trust, for example, a phone number indicated on the bank statement, policy documents or the online banking platform.
Frequently asked questions on Brexit prepared by the Bank of Lithuania