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Atsumi & Sakai
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Newsletter from our FRANKFURT OFFICE (Tokyo - Frankfurt): Atsumi Sakai Janssen Rechtsanwaltsgesellschaft mbH
Atsumi & Sakai is a multi-award-winning, independent Tokyo law ﬁrm with oﬃces in London and Frankfurt.
Expanding from its highly-regarded ﬁnance practice, the ﬁrm now acts for a wide range of international and domestic companies,
banks, ﬁnancial institutions and other businesses.
The ﬁrm operates as a foreign law joint venture, combining a comprehensive Japanese-law and German-law practice consisting ofa team of highly experienced Japanese, German and other foreign lawyers.
The Frankfurt oﬃce advises its clients in Japanese, English or German both in German and European law.

‘Brexit’ Implications for Financial Institutions (1)- Why Frankfurt can be an alternative -| Page 1/4 |September 2017 No.FRT̲001

Brexit Vote
Following the referendum of 23 June 2016 whereby 51.9 per cent of the electorate
voted for an exit of the United Kingdom from the European Union, it is now envisaged
that the United Kingdom will leave the European Union (EU), which in turn means, itwill most likely leave the European Economic Area (EEA), as well. This has createdsigniﬁcant uncertainty for the UK, the EU, and global economies.
With formally declaring the exit according to Article 50 Treaty on European Union (TEU)
on 29 March 2017 vis-à-vis the EU, British prime minster Theresa May triggered thetwo-year process of leaving the EU.
Brexit talks now have started as scheduled on 19 June 2017, the goal of which is thenegotiation of a withdrawal agreement. If no such agreement can be reached by theend of March, 2019, the EU treaties will automatically cease to apply to the UK (socalled ‘Hard Brexit’). In order to avoid Hard Brexit, a withdrawal agreement would haveto be agreed upon beforehand, or at the latest, by March 29, 2019. Afraid to lose theability to conduct business in the EEA, many banks and other Financial Institutions(jointly “Financial Institutions” ) based in the UK have already taken steps to relocate
parts of their business to other EEA countries. Though the outcome of the negotiations is at this point still unclear, it is fairto say that the impact of Brexit on the ﬁnancial sector will be substantial and that it is not advisable to simply wait out theprocess. The stakes are clearly too high.
This newsletter will deal with the EU ﬁnancial passports and reaction of the market to Brexit, whereas a second newsletter
will address the matter of setting up a subsidiary in Germany and a third newsletter the labor law aspects.

No more passporting rights
One of the main aspects regarding the UK’ s decision to leave the EU is the fear of losing so-called European passportingrights ("EU passports"), introduced in 1995. The EU passport is a term referring jointly to a variety of diﬀerent passports,
which enable Financial Institutions inside the EEA to trade their products and do business within the whole of the EEA by
having just one EEA-licensed subsidiary. There is no single EU passport set out in any one directive. Whenever an EU directive
or regulation which deals with a regulated activity, provides for member states to allow businesses from other member states
to enter their market, this is termed passporting. A summary of some of the relevant directives can be found at:
http://www.bankofengland.co.uk/pra/Pages/authorisations/passporting/default.aspx.

‘Brexit’ will lead to a situation in which Financial Institutions currently established in the UK will be treated as third country
Financial Institutions, thereby losing the privileges available under the current system, unless stipulations in the withdrawal
agreement provide to the contrary, which appears to be unlikely.
Loss of passporting rights will aﬀect all Financial Institutions (in particular, investment-banking, asset management, wealthmanagement, payments, and cash management activities). For asset management activities, the Alternative Investment
Fund Managers Directive (AIFMD) [1] could probably be extended to the UK as a third-party country operating under “equivalent”
regulation[2] , with a number of limitations and subject to approval from the European Securities and Markets Authority (ESMA).
To distribute Undertakings for Collective Investment in Transferable Securities (UCITS) funds in the EEA, however, the UCITS
Directive[3] requires the domiciliation of funds and their management companies in the EEA, meaning that UK asset managers
would need to establish a gateway hub in the EEA if they do not already have one.

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Likewise, investment management businesses in the UK would also require an EU gateway hub in order to provide products
and services in the EU under the Markets in Financial Instruments Directive (MiFID)[4], unless their products target only professional
clients, which is possible under “granting of equivalence” . A very good summary of the diﬀerences between passporting andequivalence under the various directives can be found in the table on p. 3 of the following document:
http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/587369/IPOL_BRI(2016)587369_EN.pdf

As such, Financial Institutions face the option ofeither giving up their EU business, or establishinga fully authorized and licensed branch or subsidiaryin one of the other EU member states. Dependingon the outcome of negotiations between the UK
and the EU, these subsidiaries may need to be“substantial” (beyond merely a light footprint)
and both independently and robustly capitalized
in order to be compliant.
A solution in which the UK leaves the EU, but at
the same time upholds only the beneﬁcial rules
without supporting the EU budget and allowing
for the free movement of persons is not very likely.
For instance, the often-discussed Norway model,
where Norway is a member of the EEA, but not
the EU (just like Iceland and Liechtenstein), still
includes the free movement of persons, whichaccording to Theresa May would not be acceptable
for the UK.
(sources: e.g.

https://www.fnlondon.com/articles/norway-model-oﬀers-britain-a-solution-on-brexit-20170616;
https://www.theguardian.com/politics/2016/dec/01/
can-the-uk-adopt-the-norway-model-as-its-brexit-solution)

Reactions of the market

Amsterdam
・Mitsubushi UFJ Financial Group・Royal Bank of Scotland
Dublin・Bank of America
・Barclays
・J.P. MorganBerlin
・LloydBanking Group

LondonParis
・HSBC

Luxembourg
・J.P. Morgan
・China Everbright・Northern TrustFrankfurt
・Daiwa Securities
・Deutsche Bank・Goldman Sachs
・J.P. Morgan Chase・Mizuho FinancialGroup・Morgan Stanley
・Nomura・Silicon Valley Bank・Standard
Chartered Bank・Sumitomo Mitsui
・UBS・VTB・Woori Bank

Frankfurt is the greatest winner in the battle for
Image retrieved from the website of European Commission:‘Brexit’ relocations of Financial Institutions. So far,https://ec.europa.eu/avservices/photo/photoByMediaGroup.cfm?sitelang=en&mgid=38
a number of Financial Institutions have decided torelocate a substantial part of their operations toFrankfurt and – in some cases to establish their future EU headquarters in the city - to ensure access to the single market
even after a ‘Brexit’ .
Amongst the Financial Institutions that have already indicated that they will extend their presence in Frankfurt considerably
are Sumitomo Mitsui Banking Corporation, Nomura Holdings Inc., Daiwa Securities Group Inc., Standard Chartered Plc, Citigroup
Inc., Goldman Sachs Group Inc. and Morgan Stanley.

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Frankfurt is not only Germany’ s ﬁnancial center, but already one of Europe’ s and the world’ s ﬁnancial centers. Amongother banks and Financial Institutions it is the location of the European Central Bank (ECB), the European Insurance andOccupational Pensions Authority (EIOPA), the German Bundesbank as well as the German Federal Financial Supervisory
Authority (BaFin). Especially the close proximity of the ECB, being the central bank for the EURO, is an advantage forFinancial Institutions. The ECB deﬁnes and implements the monetary policy of the eurozone[5]. A constant and immediatecontact with the regulatory authority itself allows for information exchange, lobbying opportunities and the discussion ofquestions and future policies both on a formal and informal level.
It is reported that Wolfgang Schäuble, Germany’ s ﬁnance minister, encouraged all Financial Institutions to favour Frankfurt
as their new home after Brexit and touted the stable German economy as a key plus side of making the move. Also, Volker
Bouﬃer, the Minister-President of the state of Hessen, lauds the city as “the most important ﬁnancial hub in continental
Europe and a key centre of ﬁnancial market stability” .
The city has many advantages in comparison with other options like Paris, Dublin or Amsterdam. From a more practicalpoint of view, Frankfurt’ s airport is a major air traﬃc hub, located just 20minutes from the city center and oﬀering several
daily direct ﬂights to Japan. The BBC reports that there are approximately one million square metres of oﬃce space inFrankfurt available for immediate occupancy, and an extra 250,000 square metres will be available within the next fewyears. It has also been reported that there is a plan for 20 new skyscrapers in Frankfurt[6]. Also, there is an advantage froma language perspective, in which everyday communication can easily be conducted in English in Frankfurt. Germany alsooﬀers the option for tax returns and regulatory submissions to be carried out in English.
Furthermore, the state of Hessen currently is exploring ways to loosen labor law requirements for highly paid employeesthat are not categorized as executives (will be described in a later newsletter). Lastly, Frankfurt is a cultural center of theregion. It boasts with numerous museums, theatres, restaurants, and cafés, as well as a famous opera house and several
festivals throughout the year.

--[1] DIRECTIVE 2011/61/EU. This Directive lays down the rules for the authorisation, ongoing operation and transparencyof the managers of alternative investment funds (AIFMs) which manage and/or market alternative investment funds (AIFs)
in the Union (Art. 1).
[2] “Equivalence” is a critical concept for ﬁnancial services oﬀered inside the EU, but originating from third countries. If theregulations in those third countries are substantially close to those in the EU, the ﬁnancial institutions regulated in suchcountry can perform certain ﬁnancial services in the EU under certain regulations which are less strict than other foreign
ﬁnancial institutions.
[3] DIRECTIVE 2009/65/EC ( ‘UCITS Directive’ ) is the directive on the coordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable securities. It facilitates that such collective
investment schemes are possible in the EU in case they are authorized in at least one member state.
[4] DIRECTIVE 2004/39/EC. MiFID harmonizes regulation for investment services in the EEA, with the aim on increasing
competition and consumer protection. Due to several amendments over the years it has been recast with DIRECTIVE 2014/65/EU (MiFID II), extending the scope of products and activities, enhancing investor protection and extending transparency.
[5] Art. 3 ECB Statute[6] http://www.bbc.com/news/business-41026575

FrankfurtLondon

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TopicsJapanese attorney (Bengoshi) Daisuke Tsuzuki commenced work at the Frankfurt oﬃce on September 1, 2017 after
completing his LL.M. at the University of Southern California (USC) Gould School of Law.

Author(s) / Contacts
� Author / Local Contact �� Author / Contact in Japan ]� Author �

Atsumi Sakai Janssen Rechtsanwaltsgesellschaft mbH,
a German legal professional corporation

Atsumi & Sakai
Tokyo Head Oﬃce

Atsumi Sakai Janssen Rechtsanwaltsgesellschaft mbH,
a German legal professional corporation

Frank Becker

Takafumi Uematsu

Pascal Soepper

Admitted in the Federal Republicof Germany*

Admitted Japan (2004)
and California (2010)> View Profile
E-mail:frank.becker@asj-law.jp> View Profile
E-mail:takafumi.uematsu@aplaw.jp

Admitted in the Federal Republicof Germany*> View Profile
E-mail:pascal.soepper@asj-law.jp* Not Registered as a Foreign Lawyer and not practicing law in Japan

ProﬁlesFrank Becker
Before opening the Frankfurt oﬃce, Frank Becker was one of thefounding partners of the Munich oﬃce of a major US law ﬁrm andan associate in a Magic Circle ﬁrm. He leads the Frankfurt oﬃce andhas extensive experience in M&A transactions and joint ventures.
He studied law in Japan for a year and advises Japanese clients inconnection with German law related matters, with a focus ontransactional, corporate and compliance matters.

Takafumi Uematsu
Takafumi Uematsu previously worked as a secondee at the Frankfurt oﬃceof Norton Rose, and since then has been involved in EU-related matters,such as EU ﬁnancial regulations, antitrust, and data protection matters.
He has experience in cross-border matters between Japan and the EU.
He has extensive experience in securitizations and M&A transactions.
He manages the Tokyo-based German desk.

Pascal Soepper
After serving as Assistant Professor at Niigata University for a term of 3 years,
Pascal Soepper joined Atsumi Sakai Janssen in 2016 and recently relocatedto Frankfurt. He works in the ﬁeld of general contract and corporate law,as well as IT Law and FinTech, with a particular emphasis on crowdfunding.

Location (Frankfurt Oﬃce)

Contact

Atsumi Sakai Janssen Rechtsanwaltsgesellschaft mbH

Europe Practice Team (Atsumi & Sakai)Taunusanlage 21, 60325 Frankfurt am Main, Germany

E-mail: info_frankfurt@aplaw.jp--Atsumi & Sakai newsletters are prepared by Japanese lawyers (Bengoshi) and are provided as a general guide only; they do not constitute, and should not be relied on as constituting legal advice.
Please see notice 2. below regarding any subsequent Japanese law advice.
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and Australian Federal law. For further information, please see our website, www.aplaw.jp.
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© Atsumi & Sakai 2017