When the UK’s Financial Conduct Authority (FCA) and the European Commission warned consumers that cross-border financial services would be disrupted because of Brexit, few really grasped what that meant in practice. Now the nature of those disruptions is becoming clearer.

In the past few weeks some British banks have written to their customers in certain EU countries to announce the closure of their accounts.

Among those terminating the service there are brands belonging to three of the “big four” UK banks (Barclays, NatWest, Lloyds and HSBC). But only some banks are taking such action, only some types of account are affected and only in some EU countries.

“We have written to a small number of customers living in affected EU countries to let them know that due to the UK’s exit from the EU, regrettably we will no longer be able to provide them with some UK-based banking services,” says a statement by Lloyds Banking Group.

The closure affects retail customers in the Netherlands and Slovakia and business customers in the Netherlands, Germany, Ireland, Italy and Portugal. In total, 13,000 Halifax, Lloyds Bank or Bank of Scotland account holders have been contacted.

Barclays would not provide details on how its operations will change. Coutts, a bank and wealth management company owned by NatWest, is said to be closing accounts across the European Economic Area (EU plus Norway, Iceland and Liechtenstein).

The Cooperative Bank is not taking action but will “continue to review” its approach, a statement says. HSBC and Santander do not plan to change their services, according to media reports.

Why such differences?

End of an era

Before Brexit, UK banks could operate in the European Economic Area under the EU system. This involves common rules and the possibility for a financial entity licensed in an EEA country to use its authorisation in other EEA states (the so-called “passport”).

As the post-Brexit transition ends, from next year UK banks will have to comply with rules for non-EU firms. These rules are different in each EEA state and can require a national license or the transfer of activities to already authorised institutions.

However, national licenses “are not available in all EU countries, provide access only to a limited range of services,” and generally do not cover cross-border trade, notes a briefing by UK Finance, the organisation representing the British financial industry.

National rules can also be restrictive for certain types of products (e.g. regular accounts, savings accounts, mortgages, insurances etc.).

The Netherlands, for example, will not allow UK financial firms to continue providing cross-border current and savings accounts, nor payment and electronic money services, according to a document by national regulator DNB. The Bank of Italy restricts “UK electronic money institutions… payment institutions, and asset management companies”. Other countries have set their own limitations too.

The ability of UK banks to continue offering services in the EEA therefore depends on how each bank operates, the products it offers, the country where customers are based and the regulations there.

Whether these changes will affect also customers who currently live in the UK but will move to the EU in the future is unclear.

The EU can allow non-EU firms to offer some banking services across the EEA if their national regulations are considered ‘equivalent’ to EU standards. Retail banking activities such as deposits and credit cards, however, are typically not covered by these decisions, UK Finance notes.

Europe Street also understands that, regardless of the outcomes of the negotiations, financial services to individual consumers are unlikely to be included in a future EU-UK trade agreement.

On the other side, EEA banks can continue operating in Britain under a temporary permission regime, while the FCA has launched a consultation on new rules to apply in the future.

Seeking solutions

MP Mel Stride, chair of the House of Commons treasury select committee, has recently written to FCA’s Interim Chief Executive Chris Woolard, demanding to ensure that UK banks give “sufficient warning” to customers if accounts are terminated.

In a letter to banks CEOs and branch managers, the Bank of England’s Prudential Regulation Authority and the FCA asked to ensure that customers affected by a reduction or cessation of services “are treated fairly” and receive “sufficient notice to seek alternative arrangements in an orderly manner”.

Many Britons in the EU have taken on social media to complain about the disruptions, arguing they were using the accounts not only to receive payments, rents or pensions, but also for expenses back in the UK.

Among the solutions, some are considering finding a way to maintain a UK address, switching to other banks, or opening multi-currency accounts with new online financial firms such as Revolut, Monzo and Transferwise.

Under EU rules, anyone living in an EU country has the right to open a basic account with a local bank. But services might be limited and fees may apply for transactions in other currencies. Some customers also complained that it will be difficult to create a UK credit history with a bank account in the EU.

The UK Department for Work and Pensions has confirmed that state pension can be claimed abroad. But these will be paid in local currency, so the amount can change depending on exchange rates.

Sue Davies, Head of Consumer Protection at consumer organisation Which?, told Europe Street: “Consumers could see many cross-border rights fall away or become difficult to enforce unless an agreement with the EU is reached. The government must be very clear with consumers about how they can prepare for potential changes.”

Claudia Delpero © all rights reserved.

This article was first published on October 4 2020 and was updated on October 9 with the PRA and FCA letter. Photo by Jan Antonin Kolar on Unsplash.

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