Insights

On 2 September 2020 the Malta Financial Services Authority (the “MFSA”) issued a circular outlining the implications on Maltese licence holders in relation to their online activities in the UK in light of the imminent Brexit. The Circular refers to the Directive on Electronic Commerce (i.e. Directive 2000/31/EC of the European Parliament and of the Council on certain legal aspects of information society services, in particular electronic commerce, in the internal market) which directive covers a wide range of activities which may take place online.

When does the Directive on Electronic Commerce Apply?

The Directive on Electronic Commerce, in particular, applies to services provided without the parties being present together at the time when the services are provided and its true objective is to create a legal framework to ensure the free movement of information society services between Member States. Information society services are services normally provided (i) for remuneration (ii) at a distance (iii) by electronic means and (iv) at the individual request of a recipient of services. These activities usually consist of selling services which give rise to on-line contracting.

What changes following Brexit?

In accordance with the principle of freedom of services, Article 4 of the Directive on Electronic Commerce allows licensed entities to take up and pursue the activity of an information society service provider throughout the EU without the requirement of obtaining prior authorisation in other Member States.

However, in view of the UK withdrawing from the EU, as from 1 January 2021, the provisions of the Directive on Electronic Commerce can no longer be enforced in the UK. As a result, as from 1 January 2021, licence holders which offer online services in the UK can no longer continue operating in accordance with the Directive on Electronic Commerce. In addition, those licence holders which wish to continue accessing the UK market via this route are required to immediately contact the UK’s Financial Conduct Authority (the “FCA”) to seek authorisation to carry on new business in the UK in this manner. Licence holders are required to keep the MFSA in copy in any correspondence with the FCA.

In the event that the licence holders require authorisation in the UK, then importance should be given to the timing and other implications of applying for authorisation, as well as the changes to the relevant financial promotions rules that may come into play.