Despite many discussions since our last update (see here), uncertainty around how the world will look after Brexit continues.
The European Commission’s Directorate General of Energy has recently issued this document outlining the consequences of a “hard Brexit” in terms of the energy market. It stresses several issues that would occur, for example the requirement that UK based entities re register in the “CEREMP” database under a new authority, that market coupling would no longer be permitted, and that a fee may be applicable for inter-connector use. This article on Power Engineering International discusses this issue, as well as the issue of the market in Ireland, which covers both the republic of Ireland and Northern Island. The ISEM market, which will run from October, is a key discussion point of Brexit, and is explicitly mentioned in the draft Withdrawal agreement (see here).
This article on the Clean Energy News web site discusses a letter written by the chief executives of large energy companies to both Michel Barnier and his UK counterpart David Davis, urging that agreement be made on the Internal Energy Market as well as Emissions and clean energy matters.
Yesterday, the European Parliament ECON committee discussed a draft proposal relating to CCPs clearing Euro products based outside the EU, which would include the UK after Brexit. Previously, it had been proposed that all such CCPs would need to be location in substance within the EU (see here). However, as reported in this article on the Reuters site, the proposal is now less severe. CCPs clearing Euros would be permitted to operates outside the EU provided that the local supervisors maintain an adequate supervisory standard of the CCP and “cooperated” with the EU institutions. If such cooperation is not forthcoming, the CCP would need to relocate to the EU. This remaining power of the EU over operations in a third country still leaves some with reservations. ECON meeting documentation can be found here.
The European Central Bank also recently issued this article entitled “Brexit: impact of a potential transition period”. It looks at the possible issues that entities may have during the transitional phase, in particular if relocating some services to the EU 27, and the authorisation process around it. This summary article on the Norton Rose Fulbright LLP site written by Simon Lovegrove provides a further summary.
Regulators and Central Banks in the UK and EU have begun to work together to ensure that effect of a possible “cliff edge” Brexit is mitigated as much as possible. This article on the Reuters web site discusses an initiative of the ECB and Bank of England to prepare for this scenario, as well as other initiatives by the FCA and other National Competent Authorities in the EU.
Andrew Bailey, Chief Executive of the FCA has given this speech, addressing Brexit and arguing that open markets are better for all. Recognition, rather than equivalence is the preferred route, since it allows a degree of divergence whilst ensuring that regulatory principles are adhered to. In contrast, Michel Barnier has given a speech which argues that equivalence is the best mechanism to use in terms of the UK-EU relationship after Brexit rather than any bespoke deal. This article on the Reuters web site provides details of the speech and some reactions to it.
Valdis Dombrovskis, of the European Commission has also urged the industry to come up with a solution to the possible issue of the applicability of cross border derivatives contracts, which rely on authorisation of entities in their respective countries to be effective. This article on the Bloomberg web site explains the matter further.
This article on the Financial News web site reports on a speech made by Kay Swinburne MEP on the dangers of getting the end arrangement wrong. Such a move could undo the positive effect of several years’ reform.
Exchanges are beginning to gear up for Brexit. This article on the Reuters web site reports on the fact that although there are no concrete plans, ICE is able to move contracts quickly to other locations, as recently occurred when almost 150 contracts were moved to the US. EEX has recently issued this note advising customers to make appropriate preparations for Brexit.
With just over 10 months to go, those in the UK or with activity in the UK are advised to consider the impact of Brexit, under different scenarios, as soon as possible, since in some cases new arrangements will need to be put in place for the “new world”. ETR Advisory “regulatory support” clients should have received an analysis of the possible impact of Brexit to rules such as EMIR, REMIT, MiFID II and MAR (see here). Readers are welcome to contact us here for further discussions and information.