The United Kingdom and the European Union are now two distinct market areas with diverse policies, regulations, and laws. The UK completed its withdrawal from the EU on anuary 1, 2021, and the changes brought on by Brexit will have an effect both on Finnish citizens as well as businesses operating in Finland.
Impact on Trade
On December 24, 2020, the EU and the UK concluded their negotiations on the Trade and Cooperation Agreement (the “TCA”) and the complementary agreements on the security of classified information and nuclear cooperation. The TCA came into effect as of January 1, 2021, and it exhibits a more distant relationship between the EU and the UK.
Trade between the EU members and the UK will involve major changes despite the conclusion of the TCA negotiations. New barriers to trade are inevitable, and Finland needs to be prepared for customs duties, formalities and regulations that will apply to all goods being exported to the UK, which is Finland’s seventh biggest trading partner.
Finnish companies can expect border controls that may lead to longer delays at customs and increased costs due to new paperwork, including customs declarations required on goods traded in both directions. The TCA provides for zero tariffs and zero quotas on all trade in goods originating in the EU or the UK. However, the agreement provides that a product will be subject to tariffs if more than 40% of its pre-finished value is neither of UK nor EU origin.
The UK no longer belongs to the European Economic Area (EEA). As a result, going forward, UK residents will not fulfil the requirement under the Finnish Limited Liability Companies Act that at least one board member, one deputy board member and the managing director must be the resident of an EEA member state.
The Finnish Patent and Registration Office (PRH) can grant an exemption from this requirement. However, in practice, the PRH grants exemptions due to place of residence only to persons living permanently in countries that have acceded to the Lugano Convention. The UK has not acceded to the Lugano Convention and has been bound by it only because of EU membership.
If no other board members or deputy board members of a Finnish limited liability company are the residents of an EEA member state and the PRH has not granted an exemption, the board cannot form a quorum and, ultimately, the registration authorities may order the deregistration of the company due to the lack of a competent board of directors.
Impact on Financial Services
Brexit will also affect the financial services infrastructure and the financing arrangements of European financial companies. The TCA obliges both the UK and the EU to ensure that their markets remain open on a non-discriminatory basis to firms in the UK and the EU provided that these firms are appropriately established in the relevant country.
The TCA also commits each party to warranting that internationally approved standards in the financial services sector are implemented and applied in their territories. As noted by the Chancellor, both the EU and the UK are now committed to founding a Memorandum of Understanding by March 2021 in order to establish a framework for regulatory cooperation on financial services.
Until now, due to the EU’s passporting scheme, which permitted firms to do business throughout the EU without needing additional authorization, Finnish financial sector firms have been able to provide services in the UK with relatively few restrictions. However, the EU framework for financial services regulation will no longer apply in the UK. As such, Finnish financial service providers can no longer automatically operate in the UK. If a Finnish company intends to continue providing financial services in the UK, it must obtain a new UK-specific licence from the British Financial Conduct Authority.
Finnish third-country provisions now apply to the UK
To serve customers in the EU, UK based firms will have to be granted equivalence rights under which the EU will allow them to conduct certain financial activities. The Finnish Investment Services Act includes a cross-border license for third-country firms that provide investment services in Finland.
The activities of UK firms in Finland will be administered by national legislation and any EU rules and regulations that apply to third-country entities. As such, British businesses will need to be authorized by the Finnish Financial Supervisory Authority if they wish to continue engaging in activities and providing investment and other ancillary services in Finland to professional clients and eligible counterparties without establishing a branch in Finland.
Further, UK funds will now be considered third country AIFs. This means that if a fund manager is looking to market UK funds to professional clients or eligible counterparties in Finland, a notification referred to in Article 36 or 42 of the Alternative Investment Fund Managers Directive (AIFMD) will need to be submitted to the Finnish Financial Supervisory Authority. Marketing for non-professional investors is prohibited.
As a leading Finnish law firm, we strongly benefit from our presence in London. Our representative office and strong networks enable us to engage in dialogue with many leading Brexit experts and to provide advice on Brexit-related questions with the Finnish context in mind. Borenius lawyers will continue to monitor the Brexit situation for any developments. You are more than welcome to contact our experts if you have any questions regarding the impact of Brexit on Finnish businesses.