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21 November 2017

Likelihood of a no-deal on the rise: The no-Brexit option finds its way back to the table - 135th Brussels for Breakfast – CPD Notes

The downs-and-downs of the Article 50 negotiations so far have put into focus the harsh reality of Brexit: there is no alternative to EU membership that is even better than being a member state, but rather a binary choice: to be ‘in’ or ‘out’ of the largest economic market in the world.

Graham Bishop/Paula Martín

Organised by the Centre for the Study of Financial Innovation (CSFI) with co-presenterDavid Thomas and sponsored by PWC

This blog covers the key subjects since our last meeting that I hoped to cover but, as always, we ran out of time to deal with them all. As a Friend, you can watch the 27th `structured’ CPD web-cast with CISI. These Notes may be read to record a further 30 minutes of `structured CPD’, including a dipping into the links to the underlying stories.

Highlights from the “Brussels for Breakfast” meeting

“493 days until we go over the cliff” dominated the discussion in various ways as opinion polls are now showing a distinct shift towards the UK public feeling that a wrong decision had been made and only one third approving of the government’s handling of the Brexit negotiations. So it may yet be important that legal opinion seems to be lining up behind Lord Kerr – author of Article 50 – that the UK can withdraw its Notice – implicitly assuming that EU27 would welcome such a move.
The direct impact on the UK’s financial services industry becomes ever more apparent: 20 banks
involved in detailed discussions with the SSM; many more reviewing their structure of branches
(including in the UK); German insurance regulator asking for details of how UK companies will
honour their policies after Brexit; asset management industry focussing on delegation issues back to the UK. Even the CCP location debate has taken a major turn. Deutsche Bőrse offered a new co-operative deal to its members and the take-up seems very significant amongst the largest players. ESMA said that its new “trade reporting” system shows that the notional value of derivatives in Europe is €453 trillion – 30 times GDP – though the underlying meaning of the figure was disputed.
We also debated the ultimate significance of the overnight news that Paris had won the right to host the EBA – though only on a “penalty shootout” as one discussant put it. With the euro-outs
dramatically reduced in relative size after Brexit, could the rule-making EBA be folded into the rule-enforcer SSM? Or could it be merged into ESMA – the likely winner of the tussle for the Capital Markets Union regulator? For the moment, the EBA’s consultations on matters such as the SREPreview and the mechanics of smoothing the impact of IFRS9 on bank capital will remain central. Even if regulators allow banks to flow their new “expected credit losses” into their P&L over five years, it was pointed out that the full hit will be revealed and investors will be fully aware.
The General Data Protection Regulation (GDPR) raised surprisingly strong views as a survey reported that only 10% of firms were fully prepared. The inevitable Brexit dimension appeared instantly: what if UK standards diverge in due course? Is this the ultimate nightmare for financial services?
But we finished on an item of good news: the SEC had issued three “no action letters” on payments for research to US broker-dealers so solving – for the moment – a major problem thrown up by MiFID II which will be fully in force in just 28 working days!
Full article available for consultancy clients here

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