The United Kingdom left the European Union on 31 January 2020, however, it has not cut all ties with the EU yet. January 1st, 2021 will mark the end of the transitional period and—deal or no deal—enforce new rules on the UK-EEA transactional framework. Marius Galdikas, CEO at ConnectPay, has shared insights about how the current situation has influenced the UK’s market players’ behaviour.

ConnectPay, an online banking service provider, has been working closely with a few UK-based firms. Marius Galdikas, CEO at ConnectPay, has shared their UK partners have started establishing out-of-country entities in order to remain inside the European Union’s regulatory framework. This, along with the following of new rules for Single Euro Payments Area (SEPA) payments shows the country aims to retain a strong connection to the EU’s market.

Although the deadline, finalizing the EU departure, is just around the corner, the post-Brexit trade deal is still far from reaching a consensus. This looming uncertainty has put UK resident firms in a tight spot, raising the question of how to navigate through newly-set barriers and continue business with partners based in the EU.

“With the transition period coming to a close, we have witnessed several partners establish entities in Ireland and continental Europe. I think the biggest driver has been the opportunity to uphold licenses within the EU as well as to mitigate uncertainty over regulatory and AML requirements if they start to diverge,” explained Galdikas. Another thing is that given the fact the UK will have to renegotiate trade agreements, the outcome is likely to result in additional costs for the businesses. That’s why setting up and signing deals with EU-entities would bring more reassurance that we all can continue business as usual,” he added.

The departure has raised talks about the future of Single Euro Payments Area—SEPA—payments. Businesses have grown fond of the swiftness SEPA has brought to all cross-border transactions, and it seems they may continue using SEPA services offered by the EU financial institutions (FIs) as long as the latter apply the current rules for non-EEA transactions to SEPA Credit Transfer (SCT) and SEPA Direct Debit (SDD) payments within the UK.

Slight disorder concerning SEPA payments processing is inevitable, hence the Bank of England’s warning UK’s financial institutions to “continue taking measures to minimise disruption”. Galdikas seconded this, noting that non-UK FIs, including themselves, have already taken the appropriate measures in regard to the matter.

“From a technical perspective, we already have a setup for non-EEA SEPA members—like Switzerland—where we require debtor address details, so with the coming of January 1st, we will just flick a switch to turn on the same requirements for payments to/from the UK,” he added.

At the moment, the chances of cutting a deal seem slim: Michael Gove, the cabinet minister, stated that the likeliness of securing an agreement is less than 50 percent. As nothing is certain until the hour strikes midnight of 31 December, it is reassuring to see that FIs on both sides have already taken action to ensure the transition is as seamless as possible.

“Without a doubt, it is quite a stressful time for all. That said, fintechs are no strangers to sudden changes in the market, thus we look forward to continuing to work with UK-based businesses and aim to help them ease into the post-Brexit framework any way we can.”