Belgium braces for Hard Brexit with draft law
12 March 2019
On February 19, Belgium passed a draft law preparing itself for a Hard Brexit should the UK leave the European Union (EU) on the deadline of 29 March 2019 without a withdrawal agreement in place to regulate UK's departure and define its future relationship with the trading bloc.
On 26 June 2016, a referendum was held in the UK to decide whether it should leave or remain in the EU. In the end, 51.9 % of voters casted ballots in favour of the withdrawal, commonly known as Brexit. On 29 March 2017, the British Government triggered article 50 of the Treaty on European Union (TEU) and kickstarted formal negotiations to exit the EU in two years’ time.
The EU and the UK reached a draft withdrawal agreement in November 2018, which organises an orderly withdrawal, and contains a non-binding political declaration establishing the framework for future relations. The draft withdrawal agreement provides for a transitional period, meaning that all European legislation will remain applicable until 31 December 2020.
This draft withdrawal agreement, however, must be approved by the UK and ratified in accordance with internal constitutional rules. The British parliament rejected the draft on 15 January 2019, increasing the likelihood of a Hard Brexit – that the UK will leave the EU without a withdrawal agreement.
Given the uncertainty arising from this vote, political instability in London, and the fast approach of the 29 March 2019 deadline, the EU and its member states are preparing for a Hard Brexit.
Belgium's contingency plans
The draft Brexit law that the Belgian federal government submitted to parliament on February 19 is intended to mitigate the consequences of a Hard Brexit. This draft law is part of a number of preparatory measures taken by the federal government in accordance with requests from the European Council on 13 December 2018. Several member states have already adopted similar legislation.
Belgium's draft Brexit law will only enter into force if a Hard Brexit takes place. The law's aim is to provide a temporary, one-sided (and thus revocable) answer to the main difficulties and consequences of a Hard Brexit for areas falling within the competence of federal lawmakers:
- Asylum and Migration
- Energy and Gas
- Social Affairs
The Belgian government drafted the Brexit law in the hopes that the UK would pass reciprocal measures. Should this not be the case, the draft Brexit law can be amended without parliamentary intervention.
Asylum and Migration
The current draft Brexit law contains the following transitional measures to continue the status quo and extend existing residence rights of British citizens and their family members until 31 December 2020:
- British citizens who exercised their right to free movement and who obtained residence rights before 29 March 2019 will be able to retain their rights until 31 December 2020.
- All applications pending at the time of withdrawal will be dealt with in accordance with the conditions prior to Brexit.
- As the draft contains temporary measures only, no automatic rights are created for British citizens who apply for a residence permit post-Brexit. They will be subject to the EU's general rules applicable to third-country nationals.
- For applications from family members of British citizens (falling under points 1 and 2 above) and submitted after 29 March 2019, pre-Brexit rules will apply. These applications must be submitted before the end of the transitional period of 31 December 2020.
Energy and Gas
Interconnector (UK) Limited is a company incorporated under English law that operates a pipeline, transporting natural gas to and from the European continent with activities carried out partly in the UK (Bacton) and partly in Belgium (Zeebrugge).
If the UK leaves the EU (and the internal market in natural gas) without an agreement, Interconnector (UK) Limited will lose its "EU interconnector" qualification as specified in the Belgian Gas Act of 12 April 1965. Given the fact that current Belgian legislation does not allow for gas transport through interconnectors between Belgium and third countries, the draft Brexit law recognises
Interconnector (UK) Limited as an interconnector.
Consequently, certain provisions of the Belgian Gas Act (e.g. the certification of third countries, tariff methodology and the competence of the Belgian Federal Electricity and Gas Agency and the dispute settlement) will continue to apply to Interconnector (UK) Limited.
The draft provision, however, can only be enforced if – at least, implicitly – the EU grants authorisation.
The draft law will regulate the first-job requirement for young workers under 26 years of age of foreign origin during the transitional period when British citizens are still treated as EU citizens.
In addition, a draft Royal Decree adopted by the federal Council of Ministers regulates the employment of British nationals and guarantees their rights to continue working on Belgian territory until 31 December 2020.
A Hard Brexit could have a significant impact on social security in Belgium. As EU rules on coordination of social security legislation will no longer apply post-Brexit, the social security rights and benefits of British nationals and their relatives residing in Belgium, including pension, unemployment, sick benefits and health care, might no longer be guaranteed.
The aim of the draft Brexit law is to provide, on a temporary basis and subject to reciprocity, an extended application of European regulations on the coordination of social security systems, limited to those branches of social security that fall within the competence of the federal government, which does not include family benefits and certain long-term care benefits. The law aims to continue the status quo, provided that the UK makes an identical commitment to Belgium.
The Brexit law will enter into force when the UK leaves the EU and will remain in force until 31 December 2020. If the UK does not enter into any reciprocal commitment, the scope and duration of the Brexit law can be amended without parliamentary intervention.
The draft Brexit law delegates powers to the federal government to grant transitional relief to financial services companies and:
- lay down additional rules for third-country investment firms in order to protect investor interests and safeguard the proper functioning, integrity and transparency of the financial markets.
- adopt specific provisions regulating the activities that would be carried out in Belgium by third-country regulated markets, multilateral trading facilities or organised trading facilities.
- after seeking the advice of the FSMA and the National Bank of Belgium, take the necessary measures to ensure and secure the continuity of agreements concluded between UK financial services firms and their clients in Belgium prior to Brexit, since these firms will lose their “passporting” rights post-Brexit.
Brexit will lead to an increase in the activity of underwriting agents (or ‘authorised subscriber’ activities) in Belgium.
As these activities are currently not the subject of any particular regulation in Belgium and given the fact that UK underwriters appear to have a growing interest in Belgium, the law introduces a reinforced legal framework that takes Brexit and the need for Belgian companies to have access to underwriting agents into account. The draft Brexit law introduces new rules on the operation and oversight of insurance intermediaries carrying out the activities of "underwriting agents". A new framework will result in:
- transparency and clarity on the existence of underwriting agents, for clients (insureds, policyholders and beneficiaries) and for insurance intermediaries cooperating with underwriting agents.
- the avoidance of fraud by so-called “ghost underwriters” or underwriters cooperating with insurance companies not duly authorised in Belgium.
- guarantees that persons carrying out this type of activity have a sufficiently robust organisation.
Underwriting agents will be obligated to register as insurance intermediaries. To this end, an additional category of underwriting agent will be created in the register of insurance intermediaries. The draft Brexit law subjects the underwriting agents to the same registration conditions as insurance brokers, and to the same conditions for carrying out activities as other insurance intermediaries.
On the other hand, a number of rules are laid down for underwriting agents, particularly regarding the obligation to have an adequate organisation, conflicts of interests and the prohibition on combining underwriting agent activities with the “distribution” activities of traditional insurance intermediaries, and the publication on the website of Belgium's Financial Services and Markets Authority (FSMA) of the underwriting agents and their obligation to inform the public of any insurance companies that have given them powers of attorney.
Like other insurance intermediaries, underwriting agents are subject to the supervision of the FSMA. Violations of the legislation may therefore be subject to administrative measures and sanctions.
For more information on Belgium's Brexit law, please contact one of our local CMS experts.