Yesterday saw many headlines in the story of Brexit, with a “significant step” in finalising a transition agreement announced (for example see here on the Sky new web site, here for the statement from the UK Department for Exiting the EU and here for the announcement from the European Commission). A new version of the draft transition agreement was published here, with the areas that are agreed in green. Other areas are still to be agreed. This follows a previous draft published unilaterally by the Commission and other statements (see here). Some are of the view that since there is no final agreement yet, a “cliff edge” scenario has merely been postponed, as discussed in this article on the Bloomberg web site.
The draft agreement talks of the “application of Union” law in the UK during the time of the transition, which would end on 31st December 2020. Despite this, it leaves many areas in which clarity is sought, including, for the energy and commodity trading sectors, issues such as the status of financial instruments and trading venues. Similarly, on the energy side, there is less on the future of the Internal Energy Market. However explicit mention is made of the Irish Single Electricity Market, on page 111, marked in yellow, which means that principles are agreed, with drafting still to take place. Such principles appear to include the market as a whole being run under EU law for the transition period.
The issue of the future financial services arrangements is still very much under discussion, with this speech made by UK chancellor Phillip Hammond 2 weeks ago, stating that a bespoke agreement on the topic is very possible. Guy Verhofstadt of the European Parliament has also made comments to this effect, as reported here on the Politico web site. In it he discusses the different arrangements that non EU countries have made, for example with Israel. Not all think that the UK will receive a good deal: as for example argued in this article by Morten Kinander of Oxford University. According to this article on the Reuters web site, the EU financial sector is preparing for a number of “hard” and “soft” scenarios.
The question of equivalence of UK markets in future is being widely discussed. This article on the Reuters web site reports on comment made by France’s AMF that the equivalence rules need to be “toughened” in advance of Brexit “to ensure stability”. However, on the UK side, there is concern at the unilateral nature around the process of granting and keeping equivalence. The CFTC has recently expressed disagreement with this process, including in this speech by Brian Quintenz of the CFTC at the recent FIA conference.
Work to do, and a paper
No matter what the transition deal looks like, and indeed what the final outcome looks like, affected firms are advised to start preparing now for Brexit, as each scenario involves some change, no matter how “soft” the Brexit. With just over a year to go, now is the time to understand the implications of each route.
ETR Advisory is preparing a paper on the different scenarios, which will be made available to “Regulatory support” clients (see here). Those who wish to learn more about this service can contact ETR Advisory at firstname.lastname@example.org.