Within the European single market, firms established in any European Economic Areas (EEA) member states could use 'passporting' rights to provide financial services in the UK without being directly authorised by the Financial Conduct Authority (FCA). In light of Brexit, however, the FCA has put in place a new temporary permissions regime (TPR), which allows firms to operate in the UK for a limited period of time. Until they are given the green light by the FCA, these firms are directly regulated only in their home jurisdiction.
The new regime leaves investors wondering which rules govern their legal relationship with European brokers post-Brexit and what options are available to them when they seek protection against fraudulent firms. This is indeed a valid concern, as Brexit affects both the applicable law and the rules on which courts have jurisdiction. Besides, the provision of financial services post-Brexit is still a matter of negotiations between the UK and the EU and further developments are expected in March, when the Memorandum of Understanding on financial regulation is due.
With regards to the applicable law on cross-border matters, this was governed, pre-Brexit, by the Rome I Regulation for contractual obligations and the Rome II Regulation for non-contractual obligations. According to these regulations, the courts are required to respect the parties' choice of applicable law. Post-Brexit, Rome I & II will continue to apply to contracts that have been agreed and to harmful events that occurred before 31 December 2020. The Rome Regulations, which have been incorporated into UK national law as retained EU law, do not depend on mutual reciprocity. Therefore, all EU member states will still have to respect any choice of law clauses even when the parties choose to apply the law of a non-EU country (e.g. English law).
With regards to jurisdiction issues, these were regulated, pre-Brexit, by the Brussels I Recast Regulation. The same rules will continue to apply for proceedings that were initiated by 31 December 2020. The Brussels I Recast Regulation is based on the principle of mutual reciprocity. So, when a party is in breach of the jurisdiction clause, then the Regulation will not apply. To avoid this uncertainty in jurisdiction disputes, the UK is seeking to join the Lugano Convention, which mirrors the Brussels Regulation's provisions. However, as unanimous consent is required, this can only be done if the EU agrees. Meanwhile, the UK has acceded to The Hague Convention, effective from 1 January 2021, which recognises the importance of exclusive jurisdiction clauses and prevents parallel proceedings.
With regards to the enforcement of judgments in a foreign jurisdiction, the Brussels I Recast Regulation will continue to apply to judgements given in proceedings which began before 1 January 2021. Enforcement of post-Brexit judgments will be governed by The Hague Convention but its provisions are of a narrower scope and do not cover the enforcement of protective measures such as freezing orders.
UK investors should be aware that these ongoing developments on the law might change the protection they are afforded and the compensation schemes that they have access to. For example, firms under the TPR are not authorised or otherwise assessed by the FCA and investors are covered by the compensation scheme provided in the firm's home jurisdiction. Despite the recent changes in the law, there are still several routes available for investors to claim compensation from foreign brokers. What is also interesting to note is that Brexit has triggered the 'revival' of some pre-EU bilateral agreements between the UK and certain EU member states. For example, the "Reciprocal Enforcement of Certain Judgments issued by the Courts of the Commonwealth Countries" (Cap.10 as amended by Law 130(I)/2000) is a piece of Cypriot legislation which provides for the enforcement of UK court judgments in Cyprus.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
