13 September 2016

122nd Brussels for Breakfast – the Blog

Summary of the meeting

Inevitably, the continuing fallout from the Brexit decision dominated the discussion. The Swiss model was dissected as the EU’s reaction to the 2014 Swiss referendum on immigration seems likely to set part of the tone for negotiations with the UK. Can the Swiss Government simply ignore the referendum result as there is no mechanism to hold them to account? If not, February 2017 could be a watershed for Switzerland – and a get-real call to the UK. We also discussed the theory that the UK can withdraw its Article 50 “Notice of intention to quit the EU” at any stage before the two-year deadline. Peter agreed it could, as did the other lawyers.

The 2016 bank stress test results drew much comment – CET1 is now up about 50% from 2011 to 13.2% so well into a sound area for the banks in aggregate. But the stress scenario continues to show that a quarter of the losses would still stem from `misconduct’ charges. Basel III developments highlighted the real risk of a major clash between the EU and the US over the treatment of items such as mortgages which loom large in Europe.

The FSB discussion note on CCP resolution was published in mid-holiday, just ahead of the G20 Summit and we talked about the surprising resort to asking the market for answers to questions rather than supplying answers so long after the Great Crash. The cross-border jurisdictional questions have huge implications for ECB/UK relations/. Will the ECB insist on calling clearing back into the Eurozone?

Brexit

British PM Theresa May attended the G20 leaders meeting, where she faced pressure over trade deals and began conversations with the Australian government to start bilateral trade talks this month. Japan was the first country to formally weigh into the upcoming Brexit negotiations, with the publication of a government note during the summit that lays out the key requests from Japanese businesses to continue operating in the UK after Brexit.

The City of London's policy and resources committee chairman Mark Boleat wrote in City AM that the UK faces two critical trade-offs in determining its future EU relationship: the delay to trigger Article 50 and the decision between keeping access to the EU Single Market or immigration control – Vote Leave’s pivotal ask. Even if May has expressed her intention to handle the notification of the UK’s intention to leave the EU in early 2017, EU regulation expert Jean-Claude Piris wrote that, even after triggering Article 50 and notifying the EU of its intention to leave, there is no legal obstacle to the UK changing its mind and revoking the whole process. Any manoeuvre to keep access to the Single Market while obtaining an emergency brake on EU migration will be stopped in the Parliament, stated Guy Verhofstadt MEP who has been recently appointed as representative on Brexit matters.

The FT reported in mid-August that the City of London had given up hope of its “passporting” rights and was now seeking a Swiss-style deal for EU market access. The article was based on a BBA blueprint for a bespoke arrangement, but the British Banking Association itself branded it “grossly misleading”. Graham Bishop analysed the feasibility of such a scheme in a piece for Financial World and wondered if the “Swiss Model” would even exist in 2017 – given the current dispute between the EU and Switzerland on migrant quotas.

An alternative to universal access to EU market would be what investors and bankers know as “equivalence”, but as the FT pointed out, policymakers have warned of serious complications to align EU and UK rules. Unfettered access will be key in the forthcoming EU-UK relationship renegotiation, since restriction to EU single market could hit a fifth of investment banking revenues in the City of London, according to early estimates by the industry. [...]

Full article available for consultancy clients here