After months of negotiation, the UK exited the European Union on January 31, 2020. UK and EU finally accord a deal that will expound their future bond that came into effect at 23:00GMT on December 2020. On December 31, 2020, the transition period in the withdrawal agreement came to an end. It means ongoing EU free movement rights, EU treaties, and the EU’s general principles no longer affect the UK. In the first place, we will throw some light on the term Brexit and EU. A former lawyer, Peter wilding, coined the term Brexit. The term is a blend of two words which is ‘Britain & exit,’ meaning British exiting from the European Union. European Union is a group of 28 countries that allows their citizen to move freely between the states to work, trade & live. In 1973 the UK joined European Economic Community and became a part of it. However, widespread doubt comes to our mind: what paved the way for the divorce of the UK from the EU? Even though the UK was a part of the EU for a long time, the UK always kept its distance from the EU. Thus, it was evident from the UK’s possessing their currency and refrained from joining the Schengen agreement. The political fraternity of Britain always incorporated the people who are resistant to the ideas of the EU. The resistance intensified mistrust among the voters and politicians after the 2008 financial crisis and due to the immigration of people from poorer EU states and the refugees from Syria, Africa, and the middle east.
In 2012, the then prime minister, David Cameroon, held a referendum on whether the UK had to stay in the EU or leave the EU. On 2016 June 23, the electorate of the UK voted to leave the EU. The referendum does not have any immediate legal consequences as the referendum was advisory rather than mandatory. But it will have a profound effect. The reason the according of deal delayed was because of the differences of opinions between lawmakers. Some lawmakers favoured ‘hard Brexit’ (complete withdrawal of UK from customs, unions of the EU, and the idea of the single market) while some favoured ‘soft Brexit’ (maintaining trade ties with EU). If the EU didn’t agree to the terms of the UK, then the country will go for a no-deal. But such a situation is avoided till now as it is expected to destroy the economy. Like the EU could strict the checkouts of British goods, they can cause an unnecessary delay at the ports and supply routes, which could eventually damage the economy.
In the Treaty of the European Union, Article 50, sets out the procedure for leaving the EU. It explains that any Member State can “decide to withdraw from the European Union following its constitutional requirements.” When examining issues in the scope of the withdrawal agreement involve separation of the UK’s rights and obligations under Article 50, which have been acquired over the past 40 years. The separation of financial obligations, securing the rights, border between Ireland and the UK, the case status of future British civil servants, involvement in international treaties, and relocation of EU bodies will be such issues to face when it comes to the scope of the withdrawal agreement.
Triggered by Article 50 from the EU, the debaters and some lawmakers come up with the exit agreement. After a long negotiation process and with the support of 20 out of 27 remaining member states (at least 65% of the EU’s population) and the European Parliament’s approval, the exit agreement (Brexit) came into effect on January 1, 2021. After Brexit came into effect, the UK will no longer apply some EU legislation. The UK’s withdrawal from the EU will impact numerous areas of the economy also. Let’s look into the potential legal implications of Brexit for the capital market, contractual disputes and enforcement, mergers and acquisitions, antitrust, tax, and financial services.
During Brexit negotiations, the financial markets are likely to be volatile, affecting the transaction timing and ability to be consumed. The EU perspective directive ruled the content, approval, format, and publication of prospectus throughout the EU, which has now switched to UK laws. With Brexit, the UK may no longer be bound to the prospectus. Hence the legislation of the prospectus has to be amended. The prospectus also provides a doorway to all of the prospectuses in the EU. Therefore, to offer a share in any other EU member state, they can use any of the prospectuses that have been approved by one member state. Without this rule, the prospectus must support both the UK and at least one member state where they want to offer their share, which is very costly and time-consuming.
Several UK transactions with the UK nexus may be affected by the ongoing uncertainty around the UK’s relationship with the EU correlated with Brexit. Brexit will be more affected by business sales or assets, while share sales are not subjected to much regulation. Hence with Brexit, the UK will be no longer bound to the directives of the EU. Thus, the UK has to repeal or amend the regulations.
Being a member of the EU, the UK is a part of the substructure for deciding the jurisdiction in the disputes, acknowledging another member state’s judgment, and choosing the ruling law of contracts. With Brexit, the UK will no longer be a part of the framework, which will affect the verdict law, jurisdiction, and the transaction of the documents. With Brexit, UK nexus mergers should be reviewed by the market authority and UK’s competition legal team separately. Antitrust legislation of the UK is interrupted with the line, including decisions of the European court of justice and the European Commission. Thus, the UK courts may no longer be required to interrupt the EU laws that the businesses also have to comply with divergent systems.
(a) The majority of the regulation of financial services in the UK is based on the EU laws that include MiFID (Markets in Financial Instruments Directive). MiFID regulates trading venues, instrument services, European market structure regulation, capital requirement directive, alternative investment fund managers directive, and capital requirement regulation. Through Banking Act 2009, “BRRD” (The Bank Recovery & Resolution Directive) has been implemented in the UK laws. Hence the fundamental bank resolution authorities should survive Brexit initially. As the EU is expected to modify BRRD, this will possibly diverge the rules rapidly after Brexit. (b) The UK shall no longer be a part of the framework of European supervisory authorities. It will not inspire the guidance or legislation of the EU, which means the withdrawal of the UK will impact the legislative agenda and the quality of the legislation.
(c) After Brexit, passporting will no longer benefit the UK financial service institutions, including other branches of the US and other non-EU parent companies.
The European Union has inspired many areas of the tax system of the UK. In some instances, the EU legislation is directly applied to the UK, while in some other cases, the EU regulations are adopted via UK legislation. For example, UK’s VAT legislation is based on the principles which are applied to the EU. In some instances, the decisions of the European Courts of Justice have either inspired the development of UK tax regulations or refrained the UK’s tax bodies from enforcing the principles of domestic tax codes of the UK.
Thus, Brexit will impact the tax systems as it will vary and will be very difficult to predict. Such areas include direct tax, VAT, customs duty, and transfer tax. Under Brexit, it is estimated that the economy could be smaller to 4.9% smaller than before. For the working class, this could be considered a boon who views immigration as a threat to their jobs and the young Britain who dreams of studying abroad and apprenticeship.