The flow of Brexit related FS publications has slowed as we await the outcome of the UK’s application for a further extension of the Article 50 notice period (see Other publications below) and the special European Council on 10 April.
The House of Commons European Scrutiny Committee published its 61st report (see Document 1 below) with updates on legislative proposals on EMIR Refit and the prudential requirements for investment firms (and the regulation of covered bonds) including a letter from John Glen of 19 March - see our update here and our previous commentary on the EMIR reform here and here and on the investment firm review here and here.
The FMLC published a paper on the draft Securitisation (Amendment) (EU Exit) Regulations 2019 (see Document 2 below). Some of the critique seems to have been taken into account by HM Treasury, as reflected by the changes in the final publication of the SI. The FMLC suggested that the government should publish guidance with a better explanation of the changes.
The European Commission (see Other publications below) and ESMA (see Document 3 below) published amended implementing decisions/recognition orders for UK CCPs/CSD to take account of the current extension of Article 50.
1. HoC European Scrutiny Committee: 61st Report of Session 2017-19
Sections 6,7 and 8 of the report consider EMIR Refit, the EC proposals concerning prudential requirements for investment firms and the regulation of covered bonds respectively and detail the latest ministerial responses to the Committee’s specific concerns. These matters are no longer under scrutiny by the Committee, but it has referred the first two matters to the attention of TSC. The full report can be accessed here.
“After nearly two years of negotiations, the Economic Secretary to the Treasury (John Glen MP) informed us on 19 March 2019 that the Parliament and the Member States had reached agreement on the “EMIR REFIT” amending legislation. The new Regulation will exempt more (smaller) financial counterparties and non-financial counterparties from certain clearing and reporting obligation. An existing exemption from the clearing requirement for pension schemes will also remain in place for a further two years. The Commission would also have the power to suspend the clearing obligation for specific types of derivatives in “exceptional situations”, for example where the only CCP offering the requisite clearing service ceases trading. EMIR REFIT will also introduce a new legal obligation on clearing brokers to provide services on “fair, reasonable, non-discriminatory and transparent commercial terms” (“FRAND”), by requiring transparency on fees as well as “unbiased and rational contractual arrangements”
As summarised in our previous Reports of 28 February 2018 and 9 January 2019, the new legislation will create a new classification system for investment firms, ranging from Class 1 (systemically-important investment banks) to Class 3 (the smallest investment firms). For Class 2 and Class 3 firms, the legislation will establish new, tailored prudential and organisational requirements, whereas Class 1 firms would remain subject to the Capital Requirements Directive for banks (as they are at present) because they “typically incur and underwrite risk” on a scale that makes them important for the EU’s overall financial stability. In addition, Class 1 investment firms based within the Eurozone would be supervised directly by the European Central Bank’s Single Supervisory Mechanism (SSM) rather than their national regulator.”
2. FMLC: Securitisation
FMLC's paper considers legal uncertainties arising from the changes proposed by the draft Securitisation (Amendment) (EU Exit) Regulations 2019. The paper can be accessed here. “In this paper, the FMLC has highlighted legal uncertainties arising from the draft statutory instrument which will onshore the securitisation regime. These uncertainties related to: (i) E.U. legislative references, including cross-references to E.U. Directives; (ii) the geographical scope of the onshored securitisation regime, particularly with respect to the risk retention requirement; (iii) due diligence requirements for institutional investors; and (iv) transitional provisions and guidelines for the U.K. securitisation regime. In view of the substantial work which has evidently gone into drafting the SIs, the FMLC is certain that HM Treasury has already taken into account both the drafting and policy issues highlighted above. The FMLC would, nevertheless, encourage HM Treasury and HM Government to publish, wherever possible, guidance which might enable impacted institutions and investors to begin planning for the future.”
3. ESMA: New recognition decisions for CCPs and CSD
ESMA has adopted new recognition decisions for the three CCPs and the Central Securities Depository established in the UK to reflect the Article 50 extension to 12 April 2019. The press release can be accessed here.
Other publications from the RegZone Brexit news feed
PMO: Letter from Theresa May to Donald Tusk
Theresa May's letter of 5 April 2019 can be accessed here.
Department for Exiting the EU: International agreements if the UK leaves the EU without a deal
A number of these documents (including the one concerning insurance) have been updated. The full publication can be accessed here.
FCA: FCA FITRS files
FCA has announced that it has built its Financial Instruments Transparency System to replace ESMA FITRS in the UK. An instruction manual has been published which provides information on how to access and download files, but FCA FITRS is not yet open to firms for testing. The publication can be accessed here.
HoL EU Financial Affairs Sub-Committee: Brexit and the movement of financial services firms
A transcript of the hearing held on 3 April 2019 has now been published. The Committee took evidence from William Wright (Managing Director, New Financial) and Andrew Pilgrim (Associate Partner, Government Financial Services, EY). The full transcript can be accessed here.
BIS: Speech by François Villeroy de Galhau: How to develop a “financial Eurosystem” post-Brexit
Text of this speech given by the Governor of the Bank of France on 5 April 2019 can be accessed here.
EC: Speech by Valdis Dombrovskis
Text of this speech, given on 5 April 2019 follows. Topics include Brexit and the capital markets sector; crypto-assets and the payments sector. The full speech can be accessed here.
EC: Implementing Decision in relation to EMIR
Commission Implementing Decision (EU) 2019/544 of 3 April 2019 amending Implementing Decision (EU) 2018/2031 determining, for a limited period of time, that the regulatory framework applicable to central counterparties in the United Kingdom of Great Britain and Northern Ireland is equivalent, in accordance with Regulation (EU) No 648/2012 of the European Parliament and of the Council has been published in the Official Journal. The decision can be accessed here.
EC: Implementing Decision in relation to CSDR
Commission Implementing Decision (EU) 2019/545 of 3 April 2019 amending Implementing Decision (EU) 2018/2030 determining, for a limited period of time, that the regulatory framework applicable to central securities depositories of the United Kingdom of Great Britain and Northern Ireland is equivalent in accordance with Regulation (EU) No 909/2014 of the European Parliament and of the Council has been published in the Official Journal. The decision can be accessed here.
HoL: European Union (Withdrawal) (No.5) Bill
HoL has published a Library Briefing which covers the HoC stages of the European Union (Withdrawal) (No. 5) Bill. The HoL Constitution Committee has produced a separate report on the Bill, on its introduction to HoL. The report can be accessed here and the library briefing here.
ESMA/ESRB: CCPs stress test
ESMA and EIOPA have announced details of the EU-wide CCPs stress test. ESMA notes that it will include the three UK CCPs within its exercise unless there is a no-deal Brexit. The press release can be accessed here. A letter by European Systemic Risk Board can be accessed here and a technical note on the Financial shock Simulator can be accessed here.
HoC: European Union (Withdrawal) (No. 5) Bill 2017-19
This HoC Library briefing provides a report on Yvette Cooper's Private Member's bill, presented on 2 April 2019. The Bill would create a legal mechanism whereby HoC can instruct the Prime Minister to ask the EC for an extension to Article 50 in the absence of an approval resolution for an exit deal from the EU. The briefing paper can be accessed here.
EC: Statement by Jean-Claude Juncker
Text of Jean-Claude Juncker's statement on Brexit at the European Parliament's plenary session on 3 April 2019 can be accessed here.
PMO: Statement by Theresa May
Theresa May's statement of 2 April 2019 can be accessed here.
EBA/EIOPA/ESMA: Risks and vulnerabilities in the EU financial system
The latest edition of this report from the ESAs highlights uncertainties with regard to Brexit and the potential for further repricing of risk premia and asset price volatility, which could be aggravated by a no-deal Brexit. The ESAs urge EU financial institutions (particularly the banking and insurance sectors), market participants and their counterparties to prepare contingency plans and notes current and forthcoming work by the ESAs in relation to stress testing. The full report can be accessed here.
EC: Statement on the vote on the Withdrawal Agreement on 29 March 2019
In this short press release, the EC "regrets" the negative vote in HoC and suggests a no-deal Brexit on 12 April is "now a likely scenario". The press release can be accessed here.
CMS RegZone publishes weekly updates (available via email, on-line and via Twitter) on Brexit developments for financial services firms. These provide analysis and commentary on significant developments during the week in question. A daily digest of Brexit news (without analysis or commentary) is also available by email here and online via the RZ news wizard here (both of these can be filtered using the Brexit topic). Links to publications are contained in each update; publications released before the updates commenced in April 2018 can be found in a bibliography here. CMS RegZone publication ‘Where we stand’ provides an overview of the current position in a single report; this is updated regularly to take account of the key developments from the weekly updates.