11 April 2017

129th Brussels for Breakfast – Notes

PM May finally triggered Article 50 of the UK's intention to leave the EU. Her letter repeatedly asked for running the talks on the exit terms in parallel with those on the future trade deal - but the EU Council and Parliament made clear that the negotiations will be sequential.

Paula Martín/Graham Bishop

Organised by the Centre for the Study of Financial Innovation (CSFI), hosted by Grant Thornton with co-presenters Mark Foster (Kreab) and Patrik Karlsson (ICMA).

Highlights from the “Brussels for Breakfast” meeting

Just two weeks after U K Prime Minister May sent the long-awaited letter to serve Notice of the UK’s intention to leave the EU that had to be the main topic of the meeting given the broad implications for financial services in the UK and EU27. The letter re-iterated four times the wish to have the exit negotiation run in parallel with talks on the future trade deal. But the European Council, in its first reaction in just 90 minutes, insisted on sequential negotiations – as did the European Parliament a week later. Shortly, the EU27 will give chief negotiator Barnier a mandate with detailed guidelines.

The preferred negotiating positon of “the City” appears to moving rapidly away from demands for continued “passporting”. In a presumably co-ordinated barrage, BoE Governor Carney delivered a speech arguing for “super-equivalence” though now in the form of “deference to each other’s comparable regulatory outcomes...and open supervisory co-operation” backed by an independent dispute resolution mechanism. Curiously, the PRA sent out a letter at the same moment on contingency planning. This pointed out that EU firms operating in the UK might well come under PRA supervision and “in that case, we would need to form our own judgements rather than relying exclusively on those of others” – perhaps a contrast to deference.

Nonetheless, the IRSG has just produced a paper arguing that `criteria for access’ to EU markets could be based on global rules. The B4B debate became very animated about all the implications, especially in the context of the earlier letter to the G20 from the Chair of the FSB – BoE Governor Carney – calling for a continued “willingness to rely on each other’s systems and institutions”.  However, the debate within the UK may yet collide with the implications of the comments by Sabine Lautenschlager – Vice Chair of the ECB Supervisory Board: “It is the ECB that grants licences in the euro area… we will only grant licences to well- capitalised and well-managed banks… we will not accept empty shell companies…”

Similar sentiments appear to have animated the EP’s ECON debate on CCP resolution: ESMA Chair Maijor called for a resolution framework to ensure CCP viability in crisis events “beyond severe and plausible market conditions.” EPP Chair Weber spelt out some implications that euro-denominated clearing could no longer be undertaken in the City after Brexit.

The Rome Declaration by the EU27 on the 60^th anniversary of the EU called for a multi-speed Europe – but heading towards the same goal. It also called for “completing the Economic and Monetary Union”. The B4B debate suggests that, despite the hopes of the UK commentariat that such lofty sentiments have no practical implications, events may yet happen that will profoundly re-shape the financial services industry in the UK.

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Full article available for consultancy clients here