The start of the New Year marked the entry into force of the EU's revamped rules for financial services, MiFID II, and re-set in motion a big headache for European regulators and firms: Brussels and London will have less than 10 months to ink a trade deal and the terms of their new relationship.
Graham Bishop/Paula Martín
Organised by the Centre for the Study of Financial Innovation (CSFI) with co-presenterJohn Rega (Mlex)
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 29th `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
Just 444 days to go to the Brexit cliff – the usual starting point for discussion nowadays! After the December European Council, the EU 27 agreed a new set of guidelines that will tie chief negotiator Barnier’s hands: this month (January) they will adopt a negotiating Directive on the “about two year” transitional arrangement. Subsequently, they will agree in March the guidelines for negotiating the future relationship. The first step will be to draft the Withdrawal Agreement itself as quickly as possible – translating in full and faithfully into legal terms – the agreement reached late in 2017. This process may well reignite the fundamental fudge on the Irish issue.
We devoted much time to what the “Canada +++” deal might actually mean as that seems the only plausible template – given the UK red lines. Its 1598 pages only devote 230 pages to Treaty text and the remainder is mind-numbing detail on specific trade items. But the treaty text includes the very explicit “prudential carve out” for financial services. A deal based on this text will need to be ratified by more than 35 legislative bodies – a formidable hurdle and several participants doubted such a process would be possible in the remaining, short time available.
MiFID II and MiFIR came into force on the 3rd – amidst widespread fears of chaos. As is now normal with such fears, they seem to have been completely overblown as only two issues emerged around the table: the sudden agreement to a 30-month delay on “open access” to futures markets and the Legal Entity Identifier (LEI) problem mainly due to non-EU entities which had not bothered to incur the €8-9 cost of registering.
However, the drive to create a CMU is alive and well with a string of consultations on the details required to bring the STS securitisation measures into operation. Interestingly, there was general agreement that mundane technical steps such as the EBA standard template for information on NPLs and the ESMA decision to require all issuers to provide their financial statements after 2020 in standardised, machine–readable form would trigger profound market change as Artificial Intelligence could make sense out of the huge data that would become available.
I highlighted my forthcoming article in Financial World on the state of play in banking union. The drive to complete it remains undimmed and a review of the last 5 years of legislation reveals that what used to be quite unthinkable is now in force… but it remains a work in progress. In particular, the EBA report on MREL revealed just how much banks are responding to regulatory pressure to end TBTF by shrinking their balance sheets instead of expanding capital. Surprisingly, bond investors do not yet seem to be charging for the new `bail-in’ risks – another problem lying in wait for the years ahead?
Finally, GDPR preparations for its introduction this May, seemed woefully behind as it is being treated as a compliance issue rather than a business problem.
These Notes for the Friends of Graham Bishop will be supplemented by our full Workbook for our CPD clients (link) – in conjunction with the 30-minute CISI webcast. We have launched our new “CPD Weekly – 10 Minute Read ‘n Verify” (link) to comply with ESMA Guidelines
Full article available for consultancy clients here
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