The UK has exited: nothing has changed, right?

On 31 January 2020, the UK departed the EU and entered into a "transition period". With firms facing unprecedented challenges from Covid-19, Brexit has understandably fallen off the agenda for the time being. However, in less than three months we will know whether the transition period will be extended, and if so, to when. Businesses will be hoping an extension is agreed sooner rather than later, so that they can set aside immediate Brexit planning considerations to focus on more pressing matters.

If you are a payment service provider (PSP) looking to continue your cross-border business after the end of the transition period, here are answers to some of the questions you may be asking yourself.

I am a UK PSP, can I continue to provide services into the EU during the transition period?

Absolutely. In practice, very little will change for UK PSPs during the transition period as:

• EU law will continue to be directly applicable in the UK and have direct effect;
• the UK will remain a member of the Single Market and the Customs Union; and
• passporting will continue.

What happens at the end of the transition period?

Following the UK's legal departure from the EU, 31 December 2020 now looms as a new "cliff edge",. This is because we expect passporting rights to be lost at that date because either:

• no deal will have been agreed between the EU and the UK by that date; or
• the EU and UK will have reached a limited free trade agreement (FTA), but the indications are that a FTA will not include financial services.

This means that UK PSPs who currently passport into Europe will need to look closely in the months ahead at any local temporary permission regimes or similar arrangements which individual EU Member States may introduce, in order to ascertain whether they will be able to continue doing business in those Member States after 31 December 2020.

If suitable temporary permission regimes are not available in time, UK PSPs would need either to cease doing business in the EU or to restructure their business to ensure that EU business is undertaken by an authorised or registered entity with permissions to act as European PSPs after 31 December 2020 (or at such time as the transition period ends, if extended).

I am an EU PSP, is there anything I need to do to ensure I can continue to do business in the UK after the transition period?

If you have already submitted a notification to the UK financial services regulator, the Financial Conduct Authority (FCA), notifying it of your intention to use the Temporary Permissions Regime (TPR), then there is nothing else you need to do at this stage.

If not, you should do so when the FCA re-opens the notification window later this year. This will allow you to make a notification before the end of the transition period. Find out more in the FCA's press release published on 30 January 2020.

Will the UK still participate in SEPA during the transition period?

On 7 March 2019, the European Payments Council (EPC) approved the continued participation of UK PSPs in the Single Euro Payments Area (SEPA) schemes after the UK's exit from the EU.

Although the UK became a non-EEA SEPA country as of 1 February 2020, UK PSPs will continue operating within the scope of the SEPA schemes because existing EU rules and regulations will continue to apply in the UK. To this extent, during the transition period, no new requirement will apply and no changes will be needed for SEPA Credit Transfers and SEPA Direct Debit transactions to and from the UK. This includes practical considerations, such as charging codes and treatment for anti-money laundering purposes which will remain the same during this period.

However you should check your continuing ability to access European payment systems (such as TARGET and EUR01) as their eligibility criteria is predicated on European institutions (which UK Authorised Payment Institutions and Electronic Money Institutions will cease to be at the end of the transition period).

Will I be bound by the new disclosure requirements under the revised CBPR2?

The provisions in the revised Cross-Border Payments Regulation (CBPR2) have various application dates, but most of the provisions will either continue to apply or start to apply in the UK during the transition period:

• 15 December 2019: CBPR2 as a whole applied from this date, although most of the operative provisions will not apply until later dates (see below). However, Article 3 (relating to equality of charges) as amended has applied from this date. Since the amended Article 3 was law in the UK prior to Brexit, it will apply in the UK post-Brexit.

• 19 April 2020: The majority of the transparency requirements in Articles 3a and 3b are scheduled to apply from this date.

However, in a letter to the European Commission and the European Banking Authority (EBA) dated 27 March 2020, members of the European banking industry requested the formal postponement or some flexibility in the application and enforcement of these requirements in light of the impact of Covid-19. If the European Commission and the EBA agree to a deferral, this will likely be to a date prior to the end of the transition period. That being the case, the requirements will apply in the UK from that agreed (later) date.

• 19 April 2021: The remaining provisions in Article 3a will apply from this date. If the transition period is not extended (from the current end date of 31 December 2020), then these provisions will not apply in the UK post-Brexit unless the UK specifically opts to apply them. It will ultimately depend on the approach taken by HM Treasury.

Can the transition period be extended and, if so, is this likely?

Yes. Under the terms of the Withdrawal Agreement between the UK and the EU, it can be extended until either the end of 2021 or 2022, by one decision taken jointly by the EU and the UK before 1 July 2020.

However, the UK government committed in its election manifesto to not extending the transition period. Section 15 of the European Union (Withdrawal) Act 2018 prohibits the government from agreeing to an extension of the transition period, and the government has recently repeated its expectation that the transition period will end on 31 December 2020 as scheduled.

The overwhelming majority of opinion, outside the government, is that the transition period will have to be extended in light of the changed and tragic situation brought about by Covid-19.

If the government accepts than an extension is required, the question will then become: when will the two sides agree this? Firms will be hoping this is before June so that they can consider and manage their priorities accordingly.

Can you recommend more information?

You should keep any eye on the FCA's webpage 'Preparing for Brexit' for any further developments specific to PSPs and the financial services sector more broadly. This includes the one-page notes Is your firm prepared for Brexit? and What an implementation period would mean? In addition, the FCA publishes regular updates for FCA-regulated firms to help them prepare.

Osborne Clarke’s Insights are also useful.