Confusion over 'no-deal' Brexit and bank accounts

The statement from the UK government came as part of a first batch of contingency planning papers for a potential ‘no deal Brexit’ that were released yesterday, in a paper called Banking, insurance and other financial services if there is no Brexit deal.

The wording referring to bank accounts is mixed in with references to potential problems with pay-outs from UK-based insurance policies and certain kinds of private pension annuity. This aspect is not new - Connexion initially covered it in November last year after the chairwoman of the UK Parliament’s Treasury Select Committee, Nicky Morgan, wrote to the Chancellor of the Exchequer about “the possibility that UK providers may not be legally able to pay out pensions or insurance contracts to citizens in the EU – including UK expats... a stark example of the consequences of a cliff-edge Brexit”.

At the time the Association of British Insurers told us: “If nothing is fixed, this would potentially affect a very large number of private pensions. For a pension provider to make payments on a pension they need to be regulated in the country where they are making the payments. They are currently regulated under EU rules and, if alternative regulation is not in place, firms risk either breaking the law or not fulfilling a contract to a customer, which is of great concern.”

The problem arises due to the UK’s loss of so-called financial passporting rights if it leaves the EU and no agreement is made replacing them. If there is a withdrawal agreement between the UK and EU this will allow a transition period to the end of 2020 to potentially resolve such matters; this would not apply of there is 'no deal'.

As we reported last month there have since been moves on the UK side to reassure citizens of other EU states living in the UK that they will be able to receive their private pensions from outside the UK after Brexit, however there has so far been no guarantee from the EU or EU states that the same applies to British expatriates receiving payments from the UK (we are seeking clarification from the French Finance Ministry with regard to French residents with UK private pensions and insurance policies).

Experts previously told Connexion that a potential solution after Brexit, if French residents are affected, would be to have private pensions or insurance pay-outs from UK providers paid into a UK bank account for transferral to a French one. It is an EU-wide right to be able to open a basic bank account in an EU state outside the one in which you live and this currently applies to residents of France who want to open a UK account.

However due to the UK leaving the EU’s SEPA banking zone, which makes transfers between EU states similar in cost and speed to domestic ones, transfers between the UK and France would be likely to take longer and cost more after Brexit. This is referred to in the UK’s banking paper but was predictable (we mention it in our helpguide to Brexit and Britons in France). The UK’s paper also notes that using credit cards between the UK and EU is likely to cost more, such as if using a British card to make purchases in France.

More unexpectedly, the paper raises concerns over bank accounts themselves linked to the lost passporting rights. Sources told Connexion it would be highly unlikely that expatriates would be forced to close their UK bank accounts but it is possible that making use of them, including for new deposits, could, in ways that are unclear, become more difficult. The UK’s paper implies that the problems could be eased by action on the side of the EU.

Lacking further practical clarification from the UK government, here is what its passage actually says:

“.. in the absence of action from the EU, EEA-based customers of UK firms currently passporting into the EEA, including UK citizens living in the EEA, may lose the ability to access existing lending and deposit services, insurance contracts (such as a life insurance contracts and annuities) due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services. This could impact these firms’ ability to continue to service their existing products.”

We will be following this up in our September edition, on sale at the end of next week.