One year from today, the UK will leave the European Union. In our last post here, we reported that the UK and European Commission had jointly issued a new version of the draft withdrawal treaty.
This week has seen speeches from both the Bank of England (here) and the Financial Conduct Authority (here). In summary it is stated that there is a target for “passporting” to continue through the transitional period which is proposed to run to the end of 2020. In addition, there are thoughts on ensuring that cross border contracts can function correctly across the different periods, and also discussions on the margining side of things. A summary can be found here on the Leaprate web site.
While there statements are welcome, no agreements are yet concluded regarding the transitional arrangement or the target model, despite more encouraging signs from both sides of the negotiations. As a result, some financial firms are already starting to move a proportion of staff to other EU states, as reported here on the Bloomberg web site. While the proportions are relatively small, continued uncertainty and failure to solidly some of the high level statement will exacerbate the move.
Never the less, many are now starting to consider the best model going forward from a UK perspective: This article on the City AM web site by Catherine McBride sees Brexit as an opportunity to better tailor the current financial regulatory regime. Examples of this would include tailoring the prudential regime to reduce the scope, for example removing certain smaller firms, and also looking at the client protection provisions under MiFID II. Regulatory arbitrage is a concern for some, as encapsulated in this speech by Steven Maijoor, chair of ESMA which talks of the issue of “letterbox” entities.
Separately, the UK is now aiming to stay in the Emissions Trading Scheme until at least 2020, as reported here on the Utility Week web site. After that, the UK is interested in possibly improving the local scheme to provide better carbon pricing. A speech by Claire Perry, Minister of State at the Department for Business, Energy and Industrial Strategy (BEIS) stated that the previous stance of the “European Parliament to cancel UK ETS allowances issued for 2018 if no post-Brexit trade deal is agreed with the EU.”
The next year, and period after, is likely to provide news with increased frequency. Market Participants will need to not only make scenario based plans, but start to implement them, in order to avoid running out of time.