Guidance

Trade in services: guidance for regulators on complying with the UK Internal Market Act 2020

Updated 16 February 2022

What you need to do as a services regulator in order to comply with the UK Internal Market Act 2020.

Disclaimer: This guidance clarifies and explains the operation of the market access principles as outlined in Part 2 of the UK Internal Market Act 2020. This guidance only applies to UK regulators and does not create or amend any legal obligations. Please seek legal advice if you are unclear about how any of the provisions outlined below apply to you.

Overview: purpose of the UK Internal Market Act 2020

On 1 January 2021, following the end of the transition period, European Union (EU) rules that govern how each United Kingdom (UK) nation trades with the others fell away, and powers previously exercised at the EU level flowed directly to the UK government and the devolved administrations in Scotland, Wales, and Northern Ireland.

The purpose of the UK Internal Market Act 2020 (‘the UKIMA’) is to preserve the UK’s internal market, providing continued certainty for people and businesses to work and trade freely across the whole of the UK.

Services: Part 2 of the UKIMA

Part 2 of the UKIMA governs the regulation of service providers in the UK. It ensures that service providers can provide their services freely across the UK, through the establishment of 2 market access principles:

• the mutual recognition principle
• the non-discrimination principle

These 2 principles will minimise trade barriers within the UK and complement the principles-based services framework established by the Provision of Services Regulations 2009 (‘the 2009 Regulations’).

Part 2 of the UKIMA applies to UK-established businesses and service providers. For the purposes of the UKIMA, the term “service provider” is defined in section 17(9). Schedule 2 to the Act excludes certain services and activities from the scope of the Act.

This guidance provides information about the 2 market access principles and the exclusions from these principles, as well as information on how regulators can check whether their legislative requirements are in scope. For the purposes of the UKIMA, the term “regulator” is defined in section 23(1).

Mutual recognition

The mutual recognition principle set out under section 19 of the UKIMA (‘services: mutual recognition of authorisation requirements’) provides that an authorisation requirement to provide a service in one part of the UK does not apply to a person who is authorised to provide that service in another part of the UK. An authorisation requirement is a legislative requirement (a requirement imposed by, or by virtue of, legislation) that a service provider must have the permission of a regulator to provide services.

An authorisation requirement is, in effect, a requirement that a service provider must be legally authorised before being able to even offer the service to others. For example, a requirement to obtain permission to operate from a regulator. Mutual recognition therefore applies singularly to the authorisation itself.

This means that a service provider authorised to provide services in any part of the UK (England, Scotland, Wales, or Northern Ireland) does not need to satisfy further authorisation requirements to provide those services in the other parts of the UK. Therefore, under the UKIMA, regulators (also referred to as competent authorities in the 2009 Regulations), are required to recognise authorisations issued in another part of the UK. This has the effect that, in most cases, service providers are allowed to provide their service in all parts of the UK under the same authorisation.

The principle of mutual recognition does not apply to the extent that it can reasonably be justified in response to a public health emergency. It also does not apply to authorisations that are only issued in relation to a place, premises, or piece of infrastructure. Please see below for further explanation of these provisions.

1. Check whether the legislative requirements you place on service providers are in scope of the UK Internal Market Act 2020 mutual recognition principle

Regulators must determine whether the UKIMA mutual recognition regime OR the mutual recognition regime found in the 2009 Regulations applies to the services which they authorise OR if neither apply. The two sets of mutual recognition rules are mutually exclusive and are determined by the date on which the authorisation requirement in question came into force.

The regimes are similar but the exceptions to scope of the respective mutual recognition principles are different. Please see the information below for guidance on whether your authorisation requirement falls under the UKIMA or the 2009 Regulations.

UK Internal Market Act Mutual Recognition Regime

The mutual recognition principle laid out in section 19 of the UKIMA will apply to:

a) New authorisation requirements that came into force or otherwise had effect from 31 December 2020
b) Authorisation requirements that substantively change an existing authorisation requirement (that is, change an authorisation requirement that was in force or had effect on 30 December 2020) in a part of the UK
c) Existing authorisation requirements that have not changed but where a corresponding authorisation requirement in another part of the UK has been substantively changed after 30 December 2020

If you determine the mutual recognition regime does not apply, then please note that the mutual recognition regime under the 2009 Regulations may apply instead (see Regulation 15(5) – (5e) in the 2009 Regulations).

Please note that even if the UKIMA mutual recognition regime applies, all other provisions in the 2009 Regulations continue to apply as before, to both new and existing authorisation requirements. For example, a new authorisation scheme set up from 31 December 2020 would fall under the UKIMA mutual recognition regime but would still be required to comply with all other provisions of the 2009 Regulations aside from regulation 15(5) – (5e). Please see the Guidance for the Provision of Services Regulations for further detail about the mutual recognition regime found in that legislation.

The mutual recognition principle will not apply in the following cases:

a) Where there are no mandatory authorisation requirements for the provision of a service
b) Where amendments to the authorisation requirement, and any corresponding requirements, coming into force or having effect from 31 December 2020 have not been substantive or merely re-enact or replicate requirements in force or having effect before that time
c) Where the authorisation is issued by a regulator whose geographic scope of authority is less than the whole of one part of the UK (either England, Scotland, Wales, or Northern Ireland)
d) Where the authorisation relates to specific premises, or to a particular place or piece of infrastructure
e) Where the authorisation requirement is justified in response to a public health emergency
f) Where the service sector or authorisation requirement has been specifically excluded from some or all of Part 2 of the UKIMA and listed in Part 1 or 3 of Schedule 2 of the Act

Please see more detail about these exceptions below.

Mandatory authorisations: section 17(3)

The mutual recognition principle only applies where there is a legal requirement for authorisation or for the provision of a service. Therefore, Part 2 of the UKIMA does not apply where a service provider is able to offer a service simply because there are no rules that stop them from offering the service.

Therefore, a service provider operating in a part of the UK that does not require authorisation to provide a service could not rely on the mutual recognition principle to operate in another part of the UK where the service is regulated and requires mandatory authorisation. The service provider would have to obtain an authorisation from the relevant regulator in that part of the UK.

Geographic scope smaller than England; Scotland; Wales; or Northern Ireland: section 19(2)

The mutual recognition principle does not apply to authorisations that are granted by a regulator with functions that do not extend to the whole of one part of the UK (either England, Scotland, Wales, or Northern Ireland). This means that, for instance, an authorisation provided by a local authority would not authorise a business to operate in another local authority’s area.

Requirements which relate to specific premises or infrastructure: section 19(3)

The mutual recognition principle does not apply to authorisations which relate to particular premises, or to a particular place or piece of infrastructure. For example, a licence to provide a certain service from a particular store would not enable that service to be provided from another store’s premises in another part of the UK, without a separate, additional authorisation.

Public health emergency: section 19(4)

Under the UKIMA, the mutual recognition principle can be disapplied only to the extent that the authorisation requirement in question can be reasonably justified in response to a public health emergency in the relevant part of the UK.

2. Check whether the relevant service sector is explicitly excluded from the mutual recognition principle under Schedule 2 of the Act

Regulators should note that the UKIMA mutual recognition principle does not apply when the relevant services sector, or authorisation requirement, is excluded from the mutual recognition principle under Parts 1 and 3 of Schedule 2 of the Act.

These exclusions include authorisation requirements in connection with taxation and sector specific exclusions such as audiovisual services and gambling services. There is an indicative list of service activities relating to each sector. There are also other exclusions, such as for services provided by a person exercising functions of a public nature or by a person acting on behalf of such a person in connection with the exercise of functions of a public nature. Please see Schedule 2 for the full list of exclusions from the mutual recognition principle. Please note that this list of exclusions can be amended by the Secretary of State by way of secondary legislation.

What does the mutual recognition principle mean for UK service providers?

Under the UK Internal Market Act 2020, service providers will still be able to rely on an authorisation already issued to them in one part of the UK to operate throughout the whole of the UK, as they did under the Provision of Services Regulations 2009. This is unless another authorisation requirement is justified as a response to a public health emergency.

Non-discrimination

The principle of non-discrimination set out under section 20 (‘direct discrimination in the regulation of services’) and section 21 (‘indirect discrimination in the regulation of services’) of the UKIMA provides that a regulatory requirement will be of no effect in relation to a service provider where it discriminates against that provider directly or indirectly. A regulatory requirement is a legislative requirement that would, if not satisfied, prevent a service provider from carrying on a business of providing particular services.

Regulatory requirements are broader than authorisation requirements and cover any legal requirement that must be satisfied in order to carry out a business providing services (including authorisation requirements). It would include any rule that would mean that a provider could not carry out a business of providing particular services if they did not comply with it. For example, a mandatory licence condition to have a registered address in a particular part of the UK or a requirement on how to treat client funds would be regulatory requirements if failure to satisfy the requirement would prevent the service provider from carrying out a business of providing particular services. Non-discrimination therefore applies to all requirements affecting service providers’ abilities to carry out a business of providing their services that are in scope of the UKIMA.

The non-discrimination principle means that the service provider is not bound by the discriminatory regulatory requirement and cannot be prevented from providing the service on the grounds of non-compliance with the discriminatory regulatory requirement. They would still have to comply with all other non-discriminatory regulatory requirements.

Direct discrimination: section 20

The non-discrimination principle prevents regulators from placing directly discriminatory regulatory requirements on service providers.

A regulatory requirement will directly discriminate against the service provider if it treats a service provider less favourably than other providers, explicitly because of a “relevant connection” they have, or do not have, to one or more parts of the UK (20(2)(b)). This connection could mean being based in a part of the UK; providing services from a part of the UK; or having staff with a registered office, place of business or residence in a part of the UK.

Indirect discrimination: section 21

The non-discrimination principle prevents regulators from placing indirectly discriminatory regulatory requirements on incoming service providers. A regulatory requirement will indirectly discriminate against the incoming service provider if:

a) It does not directly discriminate against the incoming service provider
b) The requirement has the effect of putting the incoming service provider at a relevant disadvantage. A relevant disadvantage is a disadvantage that makes it in any way more difficult, or less attractive, for the incoming service provider to provide their service in that part of the UK and does not have this effect on each local service provider
c) The requirement therefore causes a “significant adverse effect on competition in the market” (21(5)) for that service in the UK
d) It cannot reasonably be considered a necessary means of achieving a “legitimate aim” (21(7)).

3. Check whether the legislative requirements you place on service providers are in scope of the UK Internal Market Act 2020 non-discrimination principle

Like the mutual recognition principle, the non-discrimination principle only applies to new or substantively amended regulatory requirements in force or having effect from 31 December 2020 onwards.

Please note that a new licence to provide a service which has bespoke conditions attached to it may constitute a new regulatory requirement and therefore be subject to the non-discrimination principle in Part 2 of the UKIMA.

Under the UKIMA, any discriminatory regulatory requirement will be of no effect in relation to the service provider in question. However, the requirement will continue to apply to all other service providers who are not being discriminated against. It is strongly recommended that regulators do not introduce regulatory requirements which would be discriminatory under the UKIMA.

The non-discrimination principle will not apply in the following cases:

a) Where amendments to the regulatory requirement coming into force or having effect from 31 December 2020 have not been substantive or merely re-enact or replicate requirements in force or having effect before that time
b) Where the regulatory requirement is indirectly discriminatory and is considered a necessary means of achieving a legitimate aim
c) Where the regulatory requirement is justified in response to a public health emergency; or
d) Where the service sector or regulatory requirement has been excluded from some or all of Part 2 of the UKIMA and is listed in Part 2 or 4 of Schedule 2 of the Act.

Please see more detail about these exceptions below.

Public health emergency: section 20(3)

A regulatory requirement will not directly discriminate against a service provider to the extent that it can be reasonably justified in response to a public health emergency.

Legitimate aim: section 21(7)

A regulatory requirement will not be indirectly discriminatory if it can be reasonably considered a necessary means of achieving a ‘legitimate aim’. This applies only to indirect discrimination. The UKIMA does not allow direct discrimination based on these legitimate aims.

These legitimate aims are defined as any one, or a combination of, the following aims:

• the protection of the life or health of humans, animals, or plants
• the protection of public safety or security
• the efficient administration of justice

4. Check whether the specific service sector is explicitly excluded from the non-discrimination principle under Schedule 2 of the Act

Regulators should note that services and regulatory requirements not in scope of the UKIMA are excluded from the non-discrimination principle under Parts 2 and 4 of Schedule 2 of the Act.

These exclusions include regulatory requirements in connection with taxation, and sector specific exclusions such as services connected with the supply or production of electricity. There is an indicative list of service activities relating to each sector.

There are also other exclusions, such as for services provided by a person exercising functions of a public nature or by a person acting on behalf of such a person in connection with the exercise of functions of a public nature. Please see Schedule 2 for the full list of exclusions from the non-discrimination principle. Please note that this list of exclusions can be amended by a Secretary of State by way of secondary legislation.

What does the non-discrimination principle mean for UK service providers?

The UK Internal Market Act 2020 ensures that service providers can continue to operate across the UK without being discriminated against, for example, based on their connection to a part of the UK (e.g., where their head office is, where their staff are based, and so on). There are no new obligations on service providers as a result of this Act.

More information

• UK Internal Market Act 2020 in full
• Office for the Internal Market online service for reporting UKIM issues
• The Provision of Services Regulations 2009
• Part 3 Recognising Professional Qualifications or Experience under the UK Internal Market Act 2020: Guidance for Regulatory Bodies

Contact

Email [email protected] if you have any questions about this guidance.