Please forgive the fear-mongering headline, we really don’t expect UK businesses to get the cold shoulder from their European clients should we vote to leave the European Union on June 23rd. However, there are a lot of unknowns and there’s bound to be some kind of impact on payments and business processes in general. The CBI warned this week that a Brexit could cost the UK £100bn and a million jobs, but that claim has been widely refuted. So, what are the likely implications?
Impact on the Single Euro Payments Area (SEPA)
Although the UK isn’t part of the Eurozone, as a current member of the EU, we’re also a member of the Single Euro Payments Area (SEPA). SEPA is an initiative established by the European banking industry, with the aim of creating a harmonised, common market for payment processing across Europe. Current members include all 28 EU member states, the four European Free Trade Association (EFTA) members (Iceland, Liechtenstein, Norway and Switzerland), as well as Andorra, Monaco and San Marino. Should we decide to Brexit, there would be a question mark over how the UK would interact with SEPA. We might be required to join EFTA, which would have its own implications, or we might be better off standing alone, like the 3 “outsider” members.
Restricted Access for EU Payments?
In the worst case, a Brexit could mean restricted access to the EU market for UK payment service providers, like London & Zurich. It’s highly likely that payment service providers who have not authorised credit institutions (or other categories of institution exempt under the Payment Services Directive) within the EU will need to establish a payment institution within the EU. This would have to be a separate legal entity, not a branch of a UK legal person. This entity would need to be authorised under the PSD in the relevant EU member state, which could have a significant cost impact on businesses.
Data Protection Legislation
By retaining European Economic Area (EEA) membership post-Brexit, the UK would see little impact on the laws governing the use of personal data. Members of the EEA are subject to existing European data protection laws, so the UK could prevent the need for further red tape and bureaucracy by staying in. If not, the UK would be free to create its own legislation in this area, subject to the terms of any treaties it might enter into. The pros and cons of both options would need to be given careful consideration. The new data protection regulations, which are due to come into force across the EU within the next two years, set out hefty fines for data breaches. These would not apply in the UK if it were no longer an EU member, but would affect UK businesses operating in the EU. Without EU coordination on data privacy and issues such as cyber security, banks could be exposed to greater complexity in dealing with Europe-wide data issues.
Anti-Money Laundering (AML) and Know Your Customer (KYC)
As part of ongoing global efforts to eradicate money laundering, the Financial Action Task Force (FATF) has established an international Anti-Money Laundering (AML) framework, applicable to all FATF members. This includes the European Commission, so even if the UK were to leave the EU, it would still be bound by FATF’s rules and would need to abide by its requirements. In a post-Brexit environment, both the UK and the EU would presumably continue to take their lead from the FATF with regard to their respective AML requirements. As I said at the start, we feel it’s highly unlikely UK businesses will be cut off completely from the EU should we decide to leave. Certain adjustments might have to be made regarding payment collections, but there might also be an opportunity to refine and improve our banking processes. Rest assured, whatever the outcome on 23rd June and beyond, we’ll keep you updated with the latest developments and will ensure our payment collection service is optimised and fully compliant. If you have any questions about payments or Direct Debits in the meantime, please get in touch with our expert consultants.