While the politics around the Brexit process grow become ever more frantic (for example see here on BBC News), preparations for a possible “no deal Brexit” now need to move into reality mode, given that there are just over 6 weeks until this may occur. Since our last post here, there have been several developments of note:
The UK’s Financial Conduct Authority (FCA) has issued this notice outlining what regulated persons and others, including non financial counterparties, are required to do in preparation for Brexit, including a “no deal” Brexit. It includes compliance with EMIR and MiFID II as well as other rules. In addition, the FCA has published this notice on the implementation of EMIR in the UK, in particular for reporting counterparties. On the EU27 side, ESMA has published this notice, outlining the transition that needs to take place with respect to EMIR reporting in the event of a no deal Brexit. Essentially, from March 30th, UK entities will no longer report under the EU EMIR. However, EU27 counterparties will continue to be covered.
The FCA and Bank of England have also published lists of CCPs (here), Recognised Overseas Investment Exchanges applications (here) and CSDs (here) to prepare for temporary and transitional arrangements in the event of a no deal Brexit. This article by Katten Muchin Rosenman UK LLP on the National Law Review web site explains further. There is also much covered on ESMA’s Brexit page here.
ESMA has signed a Memorandum of Understanding (MoU) with the Bank of England for the recognition of central counterparties (CCPs) and of the central securities depository (CSD) in the event of a “no deal” Brexit. A press release can be found here. At the same time, the FCA announced here that an MoU has been reached between them and different National Competent Authorities (NCAs) as well as ESMA covering supervisory cooperation, enforcement, information exchange and the supervision of Credit Rating Agencies and Trade Repositories. This statement by ESMA deals with the issue of access to EU databases from the UK and the effect on transparency calculations.
ESMA has also published this supervisory note on the supervision of non EU branches of EU firms, looking at how NCAs should seek to supervise branches of Investment Firms headquartered in the jurisdiction but with branches outside the EU. While this covers branches in the UK after Brexit, it would also cover other third countries.
Energy markets and allowances
The UK government has published this new notice on “energy and climate after Brexit”. It discusses several topics, including the move away from the Emission Trading Scheme (ETS) and the move to a carbon tax, how the UK power market may function in the event of a no deal Brexit, the issues that could arise in the Irish ISEM market, and the impact of Guarantees of Origin. This article on the Compelo web site looks at several topics, including the use of inter connectors, including under WTO rules. Both the article and the government notice defer to “alternative no deal arrangements”. It too, looks at possible issues that could arise in the operation of the ISEM. The article summarises a report by the consultancy Wood Mackenzie on the liquidity of different gas trading points, with a possible shift of liquidity from NBP to TTF. The report also looks and climate and nuclear policy.
As the clock counts down, many plans will be put into action. The good news however, is that many documents and guidance notes are now being published from both the UK and EU side, in order to aid preparation for a possible no deal Brexit. A large proportion of market participants will need to be ready to take appropriate action in the event of a no deal Brexit.