Financial Services Brexit video series: October Brexit update

Video | October 10, 2018 | 05:14
Transcript
Simon Lovegrove Hello everyone and welcome to our latest financial services Brexit video. Jonathan, starting off, there’s some very interesting comments on the ESMA’s chair speech and particularly about wanting to push through the EMIR 2.2 legislative review and also reference to the transitional provisions.
Jonathan Herbst I think the transitional provision point, as you may recall, was about the CCPs, UK CCPs, accessed by European clearing members and others to UK CCPs. Very helpful comment and very sensible and I think it reflects in a sense the way the UK has been approaching it the other way. So let’s hope we see more of that.   Because I think the recognition there is that I think it is important for European players to have access to the UK infrastructure otherwise that is market disruption which is not in anybody’s interests.
Simon Lovegrove And now just moving on to ESMA’s letter, there was a lot of discussion in that letter about potential changes to the MiFID II and MiFID third country regimes.
Jonathan Herbst I think this perhaps arguably is not so helpful in that there are a series of points here about access by third countries. For example, the reverse solicitation issue, ideas around narrowing it and defining it and various other points that are related to that.  I think the important issue to note here is number one, that these are just proposals, in fact, to be absolutely accurate about it, ESMA writing to the Commission in the context of the investment firms review. So it is some way away from legislation. That is not to say that it should be ignored. And to take the example of reverse solicitation everybody recognises that is actually a pretty difficult approach to take anyway but I don’t think people should freak out over it.  It is a letter, it reflects a certain political mood at a particular moment.  I think people would be best advised to look at the law as it is, the various factors that they take into account to the extent that they are, for example, relying on reverse solicitation, fine, but be very careful.  I think that is basically the message. What comes down the tracks as a result of the ESMA letter is much less clear in my mind, let’s see how that plays out.
Simon Lovegrove We had the draft SI, the MiFID II draft SI. I know you have had a quick look at it. What are the headlines for you?
Jonathan Herbst The first thing is it does very much reflect the existing approach that the Treasury said that they were going to follow which is basically copy out, change what is necessary to refer to the UK authorities but don’t change any of the substance.   So that is reflected, it is very much the consistent approach of Treasury and the UK authorities. 

There are, as always, beneath the surface some real things to note so to give a couple of examples, and we might do a longer session on this.

Number one, on data service providers, the transitional there is not three years, as it is for investment firms, it is just one year so it is a very limited transitional.<b/r>
Secondly, I think it is interesting to note that the Treasury has given itself and the FCA indeed on recommendation to the Treasury, some quite considerable powers in relation to transparency, both in terms of scope, definition of the quants and exactly how the application will play out.

The third thing is to note in relation to equivalence, again, there are some quite broad powers there, in terms of what is or what isn’t deemed to be equivalent.

So I think as always with statutory instruments, you have got to look slightly beneath the surface. They are quite difficult to follow because they are in a sense amending the existing statutory instruments but I pick out those three headline points and then there is the macro point as I said that’s very much what it says on the tin but I think we might do a longer session on that or a longer video to discuss all of those issues.

Simon Lovegrove Just taking your comment about equivalence, what is going to happen with existing equivalence decisions?
Jonathan Herbst Yes, so to the extent they exist, they will be taken up by the UK, that is helpful.  Indeed, there will be certainty.  But there is also an additional point which is important to note which is even if there hasn’t been a European equivalence assessment, there will be powers for the UK to declare equivalence. It’s very interesting, if you look at one of the very last provisions in the Order, there are explicit references there to the relationship between the UK and third countries in terms of trade as to how those equivalence assessments are going to be made.  So I think you can see beneath the surface of the very open approach which is still there, the recognition that there will be new trading negotiations and relationships being created and that’s an important point to note.
Simon Lovegrove Jonathan, final question, tip of the iceberg?
Jonathan Herbst Yes, that’s absolutely right, they have been very open. We have the whole of the European financial services legislation basically to get into English law, and so MiFID is just one piece of that and we’ll see many many other Orders, and the devil will be at the detail, that’s point one. Point two, we’re now into the era of implementation so the PRA FCA joint paper on the temporary permissions regime and the authorisation regime, and then the more general paper on all of the application of the Handbook. So two huge bits of work there.
Simon Lovegrove Thanks very much Jonathan. This concludes our financial services video.  Goodbye.

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