The UK left the European Union on January 31, 2020, but has not cut all ties yet. January 1, 2021 will be the final date, it will mark the end of the transition period and the new rules on the transactional framework between the United Kingdom and the EEA will become effective or not. Marius Galdikas, CEO of ConnectPay, has shared his thoughts on how the current situation has influenced the behavior of the UK market players.
ConnectPay, an online banking service provider, has been working closely with some UK based companies. Marius Galdikas, Managing Director of ConnectPay, shared that his partners from the United Kingdom have begun to establish entities outside the country to stay within the regulatory framework of the European Union. This, together with the monitoring of the new rules for the payments of the Single Euro Payment Zone (SEPA) shows that the country intends to maintain a strong connection with the European Union market.
Although the deadline for finalizing the EU exit is just around the corner, the post-crisis trade deal is still far from reaching consensus. This looming uncertainty has put UK-resident companies in a tough spot, raising the question of how to get around newly established barriers and continue business with EU-based partners.
“With the transition period drawing to a close, we have witnessed various partners establish entities in Ireland and continental Europe. I think the biggest push has been the opportunity to maintain licenses within the EU, as well as to mitigate uncertainty about anti-money laundering and regulatory requirements if they start to diverge“, Explained Galdikas. “Another thing is that since the UK will have to renegotiate trade agreements, the result is likely to translate into additional costs for companies. Therefore, the establishment and signing of agreements with the entities of the European Union would provide more security that we can all continue as alwaysHe added.
The exit has sparked conversations about the future of payments from the Single Zone of Payments in Euros (ZUPE). Businesses have taken to the speed that SEPA has brought to all cross-border transactions, and it appears that they can continue to use the SEPA services offered by EU financial institutions (FIs) as long as they apply the current rules for financial institutions. Non-EEA transactions to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) payments within the UK.
Mild disruptions in the processing of SEPA payments are inevitable, and the Bank of England has warned UK financial institutions that “continue to take steps to minimize disruption“. Galdikas seconded, noting that non-UK FIs, including their own, have already taken appropriate action on the matter.
“From a technical perspective, we already have a setup for SEPA members that are not members of the EEA, like Switzerland, where we require the debtor’s address details, so with the arrival of January 1, we will only press a switch to activate the same requirements for payments to and from the UKHe added.
At the moment, the chances of reaching an agreement seem slim: Michael Gove, the cabinet minister, declared that the probability of securing an agreement is less than 50 percent. As nothing is certain until midnight on December 31, it is reassuring to see that FIs on both sides have already taken steps to ensure that the transition is as smooth as possible.
“It is certainly quite a stressful time for everyone. That said, fintechs are no strangers to sudden changes in the market, so we look forward to continuing to work with UK-based companies and trying to help them get into the post-Brexit framework in any way we can.“.