Brexit – the next instalment

13th February, 2020

  • It has ‘only’ taken three years (!) for the UK to finally leave the EU on 31 January at 11pm UK time (midnight in Brussels). At that point, the Article 50 process (see below) was completed.

    Article 50 – Treaty on European Union (TEU)

    1. Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements
    2. A Member State which decides to withdraw shall notify the European Council of its intention. In the light of the guidelines provided by the European Council, the Union shall negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. That agreement shall be negotiated in accordance with Article218(3) of the Treaty on the Functioning of the European Union. It shall be concluded on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.
    3. The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.
    4. For the purposes of paragraphs 2 and 3, the member of the European Council or of the Council representing the withdrawing Member State shall not participate in the discussions of the European Council or Council or in decisions concerning it. A qualified majority shall be defined in accordance with Article 238(3)(b) of the Treaty on the Functioning of the European Union.
    5. If a State which has withdrawn from the Union asks to re-join, its request shall be subject to the procedure referred to in Article 49.

    So, what happens now?

    The Withdrawal Agreement (WA) came into force immediately. 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 323 days (sounds like a lot at the time of writing, 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.

    ACTION FOR 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.

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    • Published byJohn Wilson

      John is Head of Technical, Research and Policy with over 33 years’ experience in employee benefits knowledge management He joined Dalriada in December 2019. Previously he was Head of Technical at JLT Employee Benefits for 20 years and pensions technical roles at...

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