‘Cod quotas traded for Mifid equivalences,’ is how Luxembourg For Finance CEO Nicolas Mackel humorously characterised how the on-going Brexit discussions might unfold. He was introducing the Focus On Brexit webinar hosted by LFF on 13th October, in which industry insiders traced some possible future scenarios.
Tough words from UK ambassador John Marshall started the event, even if his talk was delivered in a diplomatic tone of voice less often used by UK government ministers. Yet the substance echoed the arguments and rhetorical style of his puppet masters in London.
Unreasonable EU?
‘The Commission has taken an unreasonable approach and we need more realism from the EU,’ he said. ‘The UK won’t accept anything that will infringe UK sovereignty,’ he added. ‘The UK wants a free trade agreement and has worked hard to that end,’ he claimed, before adding that if no-deal is possible the country will ‘switch attention to dealing with that’. In the financial sector, he pointed to the granting of access to EU-based UCITS and AIFs to the UK market until 2022/23 as a sign of his country’s good faith, yet he regretted that this move has yet to be reciprocated.
Yet this line was contradicted by the panel of industry figures who pointed to areas where EU regulators had worked to maintain cross-channel access, even in the event of no-deal. In particular they highlighted last year’s memoranda of understanding to facilitate the work between EU and UK regulators, and ESMA’s decision to continue recognising UK central counterparties. Panellists also spoke of their own companies’ moves to ensure EU and UK clients will continue to be served regardless of the result of the Brexit, with them creating or ramping up operations in each jurisdiction.
Implicit threats
The panel were hopeful for a deal. ‘The UK is not just any other third country, we have a deep relationship and the agreement needs to take this into account,’ said Pierre-Michaël de Waersegger, a partner with Arendt & Medernach. Michael Percival, EMEA head of regulatory affairs at JPMorgan, sees the potential for concern with EU regulators accumulating ‘the tools to be more inward facing; on CCP regulation, trading venues, Mifid services, even delegation of portfolio management.’ He warned about the risk of following through with these implicit threats: “barriers at borders look like protectionism, that would impact the competitive dynamic: with winners being the less competitive insiders and the losers being consumers.”
Divergence
As for the future, Percival said it would be ‘naive’ to expect there not to be different approaches taken by the UK and EU regarding financial services. He noted that the UK has already signalled a willingness to diverge on the EU’s upcoming central securities depositories regulation. Yet he hoped that the parties will ‘consider the benefits of alignment to reduce the risk of supervisory arbitrage’.
Martin Parkes, the managing director of global public policy at BlackRock, agreed but noted that multiple fund regimes have persisted in Europe alongside UCITS for many years, and that this is not something to be concerned about per se. ‘For example, PRIIPS was designed in the pre-iPhone era, so there is work to be done on how this can be aligned with current technology, while performing a similar role,’ he noted.
Consensus was that Brexit will be a process to which both UK and EU regulators and lawmakers will have to adapt continually. A poll of the more than 100 viewers of the livestream were asked if the UK/EU relationship would be tricky or smoother by the end of 2021. No less than 90% opted for ‘tricky’.