Much of the discussion about Brexit has been about its economic and political consequences. DWF’s David Wood assesses how the regulation of asset and consumer finance could be affected.
While there is considerable ongoing discussion and speculation about the impact of Brexit, much of this has been about the economic and political consequences of this historic event. But how do we think that the regulation of asset and consumer finance might be affected?
Apart from direct economic consequences, such as effects on vehicle and equipment prices and values, as well as the new and used market generally, we believe that it will be very much business as usual from a legal and regulatory perspective.
It is not thought that much of asset finance lending, particularly consumer credit, benefits significantly, if at all, from the single market. This is because lending does not work well on a cross-border basis, despite convergence, through EU law in legal and regulatory requirements.
On a larger scale, lenders do currently benefit from the ability to set up and run operations in other parts of the European Economic Area, and vice versa, utilising existing passport rights.
However, Brexit has created uncertainty here, as well as with cross border investment, until the UK’s access to the single market post Brexit has been established – not only if such access can be secured, but also the terms of access.
Much of UK Law is based on EU legislation – will anything change in the short term?
Many aspects of consumer credit and mortgage regulation derive from EU law and are already part of our legislative landscape.
For example, current consumer credit regulation – at least as far as it affects credit as opposed to consumer hire – is based largely on the Consumer Credit Directive, so, based upon Brexit alone, we will not see many changes as far as lenders are concerned.
Many other aspects of EU consumer law are also already part of UK law, so we may not see many changes there either.
The EU Mortgage Credit Directive (MCD) is another good example of existing EU legislation already written into UK law under the Mortgage Credit Directive Order 2015.
However, the MCD was not a welcome piece of EU legislation in the UK, not least because it introduced a particular category of regulated lending known as Article 3(1)(b) loans (loans to acquire an interest in land), which have resulted in some lending being subject to an unsatisfactory hybrid regime.
There are a small number of these anomalies which will in due course have to be reconsidered.
So while we do not anticipate many changes in the regulatory or legal landscape, it will be political and economic factors that will drive any change that occurs.
The review of the Consumer Credit Act – an opportunity for self-determination?
The current focus for lenders is, of course, how the forthcoming review of the retained provisions of the Consumer Credit Act (CCA) will pan out in the next three years – an issue not directly affected by Brexit.
As stated above, some of its existing provisions have originated from EU law (such as the Consumer Credit Directive). In this respect, the UK remains a member of the EU until its exit has been completed, which will not be for at least two years yet.
It may be that aspects of the CCA and its regulatory entourage that are based upon such EU law may be game for reconsideration as part of such review, whereas prior to the UK’s decision to leave, it was not.
However, it remains to be seen whether conditions for accessing the single market will impose on the UK a requirement of equivalency in regulation, a consequence of Brexit being that we may still have its rules imposed upon us, with less opportunity to influence those rules.
On the other hand, a benefit of the UK’s ability to manage its own legislative and regulatory change will be its right, subject to single market access requirements, to tailor law and regulation to any specific UK political or economic policy, market conditions or consumer behavioural economics.
What other areas of regulation might Brexit impact?
Three particular areas of uncertainty remain; the Insurance Distribution Directive (IDD) – formerly known as the Second Insurance Mediation Directive, the General Data Protection Regulation (GDPR) and the fourth Money Laundering Directive (MLD IV).
The UK is yet to implement the IDD, for which the implementation deadline is 23 February 2018.
This may affect lenders who sell insurance products. Given that we are still members of the EU, the programme of implementation must in theory continue; however, if the UK completes Brexit before implementation takes place, there may be many reasons, not least because of a desire to continue accessing the single market, why many of the measures may still end up in UK law anyway.
The GDPR will have direct application in UK law from May 2018, without implementation, assuming the UK is still a member of the EU.
However, again conditions for accessing the single market, and for the transfer of personal data between the EU and the UK, may still require a level of equivalency for consumer protections, but to enable the provisions of the GDPR to still be applicable after Brexit, there will need to be new domestic legislation making any relevant equivalent provision.
As for MLD IV, the need for continued cooperation Europe wide in relation to the prevention and detection of crime may also mean that implementation continues apace.
In conclusion, we may not see much change in the direction in which regulation for lenders will go despite Brexit, at least for the foreseeable future.
For the time being, top of the agenda will be very much a non-Brexit issue: the review of the retained provisions of the CCA.