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10 May 2018

The battle over customs union: the tipping point that may decide the fate of the Brexit war - 141st Brussels for Breakfast – CPD Notes

The row over Britain’s option for a future trade relationship with the EU risks ultimately tearing Prime Minister May’s Government apart, even before the chosen model collides with Brussels’ own red lines. A new customs union with the EU or not, that is the question.

Graham Bishop/Paula Martín Camargo

Organised by the Centre for the Study of Financial Innovation (CSFI) with co-presenterConor Foley (Norton Rose Fulbright) and Catherine McBride (IEA).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 32nd `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

323 days to go…always the starting point of the Breakfasts nowadays but the understandable interest in Brexit must not divert attention from the continuing flow of financial services events around the EU. Anything that influences the chances of a good outcome for “the City” must be considered but the minutiae of the Irish border issue can become overwhelming! However, a recurrent theme is the sense of running out of time… not just for Brexit but for the EU’s legislative process in the life of the 8th European Parliament and the current European Commission.

The window for proposing significant new legislation is now virtually closed – realistically until the new Commission takes office in October 2019. However, the Commission is preparing 30-40 legislative adjustments to deal with the risk of a no-deal, hard Brexit across all sectors.

The European Parliament has published a useful guide to the vexed subject of “equivalence” and MEP Hayes has published an own-initiative report that underlines that the equivalence concept is designed for a process where regulations of the EU and the third country are converging rather than the divergence that seems likely between the EU and UK over a period of years rather than at the moment of Brexit.

CCPs have come back to the forefront of attention again given their huge significance in a financial crisis. The £96 TRILLION of euro contracts alone in the UK are about 50 times GDP. The Bank of England has suggested a legislative fix in both UK and EU to ensure continuity but can it be done before the EU legislative window shuts? Are the potential problems of CCPs really a worry? The BIS thinks so as its report highlighted for some CCPs “serious issues of concern and warrants immediate attention.”

The problem of non-performing loans re-appeared – firstly as the EBA consults on a template for reporting so that analysts can really asses the true state of each bank. But then it seems that IFRS9 has opened the way to some banks aggressively selling off bad loans (good!) but “disguising” the capital hit (bad) by taking full advantage of the 5-year transition.


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 our “CPD Weekly – 10 Minute Read ‘n Verify” (link) complies with ESMA Guidelines

Key items from the rest of the month

The complexity of the issue of the land border in Ireland – which has put at risk the Brexit talks, -  made Theresa May put forward a handful of options to avoid a hard border along Northern Ireland’s lines, among which a hybrid customs plan with the EU is the most favoured by the Prime Minister herself.

May’s so-called  “new customs partnership” would mirror EU customs rules and collect tariffs on behalf of Brussels on goods ending up in the EU through a very complex method that has been branded “magical thinking” by European officials. But May’s inner Brexit cabinet committee narrowly rejected this model– Eurosceptic ministers deemed it “unworkable” -, which forced the Government to postpone the decision.

This insoluble conundrum might lead Theresa May’s minority Government to collapse: a letter signed by as many as 60 Tory Brexiteers has warned the PM that accepting a customs partnership with the EU would mean she can’t deliver a clean break from the EU, and therefore they may withdraw their support to her Brexit Bill.

May’s options could be boiled down to a choice between “bad and worse,” Bloomberg co-founder Michael R. Bloomberg said, recognising that Theresa May knows that Brexit talks have “gone wrong” and remaining in the customs union after Brexit, of creating a new tailored customs relationship, is the least worst option for Britain after repealing full EU membership.

Lords have inflicted a shock, new defeat to May’s plans, amending the Bill to force a vote over UK’s membership to the European Economic Area– effectively over remaining in the Single Market. Endless rebellion in Parliament has made a ‘no deal’ Brexit less likely, Labour policymakers said, and MPs could very well ultimately force the Prime Minister to renegotiate the terms of the future UK/EU relationship, prompt a general election, or even call for a People’s Vote on the deal , according to the Institute for Government. [...]

Full article available for consultancy clients here


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