Regulation Matters – mid June 2017

We take a sideways look at a scrambled Brexit, early EMIR, Maijoor on MiFID and a US perspective

Our mid-June edition takes a sideways look at the new normal – including a scrambled Brexit, #hungparliament, early EMIR, Maijoor on MiFID and surprising benefits of CFTC pronoucements.

If you’d like to know more, you can catch up with our previous editions, or sign up to receive regular updates, call us on 020 7842 4800,  contact us – or send in your comments using the form below.

UK: Brexit: what an ill-advised mess this may become

How was it for you? I’m sure ‘the lesser of two evils’ crossed many a voter’s mind as they entered the poll booth, picked up pencil and trepidatiously placed X next to a name.

In those cold dark hours before dawn, I doubt even those with strong conviction could honestly say ‘I’m inspired; excited; confident’ – especially when the choice was between – bloody difficult or mutton headed mugwump.

While I was as surprised as anyone by a hungparliament, it makes sense – ‘not convinced, so I’ll vote for the other one’.

And let’s not get started on former Liberal Democrat leader Tim Farron.

May’s major flaw – the inability to see what ill-advice her trusted advisors gave, including that lacklustre strong and stable rhetoric – may yet prove fatal, assigning her to mere a footnote in political history. Meanwhile the cheerful loser Jeremy Corbyn repeatedly neglected to see the figures or do the maths, offering instead millennial friendly promises of ‘free tuition’ and nationalised railways.

How long can it last? It doesn’t take a conspiracy theory to suspect the UK may have a new PM in six months.  What might Brenda from Bristol make of that?

So is hard now soft? Or just runny?

Regardless of your views on Brexit, as the anniversary of the vote approaches, few can claim to be happy with how the negotiations have gone thus far. Remainers remain hopeful of a second referendum, while Brexiteers call for the PM to ‘get on with it’. The fact that Brexit talks with the EU have not officially started only adds to the mess.

Scrambling to make sense of the UK election result, the City declared soft Brexit as their desired plat du jour. Unfortunately there’s no guarantee it’s on the menu.  Tough cheese: we may find the only thing available is hard Brexit, as a strict interpretation and application of EU law offers no pick and choose options à la carte.

The UK better suggest some fresh ingredients quick to the chef (in this case the no time wasting chief EU Brexit negotiator Michel Barnier) if we really expect a fully baked equivalence regime for financial institutions, plus guarantees for EU migrants on the side.

EU: EMIR II has arrived (early!)

Strange times indeed: after a track record of regulatory delay, EMIR actually arrived sooner than anticipated. On 13th June (rather than the heralded 28th) the EC published much-anticipated legislative reforms on the review of the European Markets Infrastructure Regulation – “EMIR II”.

Going by the reception this received in this week’s headlines, one might easily assume that the EU legislative proposals mean ‘bye-bye London’s €850bn-a-day euro-clearing market, we’re off to Frankfurt, no wait Paris – or the Netherlands, maybe Dublin…’

But hang on: beyond the preamble, calls for euro-denominated clearing to be repatriated to the EU did not actually translate into the EC draft proposals.

EMIR II seeks to ensure a more consistent and robust supervision of CCPs in EU and non-EU countries to deal with emerging challenges. Post Brexit, UK CCPs – such as LCH – will be deemed a ‘non-EU’ CCP, and the proposals aim to give EU regulators that non-jurisdictional supervisory reach.

So far, so anticipated. The proposals, upon first assessment, look reasonable.

The real challenge will come when the proposals are passed on to the Council of the EU and the European Parliament for political deliberation. With the ability to propose all that is wicked and wonderful in the form of amendments to the EC’s draft proposals, what was once reasonable could quickly become unthinkable.

MiFID deadline: the Maijoor doth protest

Speaking at the Futures Industry Association IDX Conference, European Securities Markets Authority (ESMA), head Steven Maijoor reiterated that:

“MiFID 2/MiFIR will come into effect on 3 January 2018, there will be no further delay in its implementation. One delay has been enough for all concerned. “

We did not expect anything different. The pseudo regulator is bound to be hard on this deadline. And the UK regulator, in the form of the Financial Conduct Authority (FCA), will vehemently reiterate this sentiment.

But the reality is that direction comes from the EC: asignificant proportion of ESMA’s advice is awaiting their rubber stamp. And until the EC approves ESMA’s advice in the form of regulatory technical standards/ implementing standards (RTS/ ITS), it’s hard to see 3 January 18 deadline becoming a reality.

Global- CFTC Chair proves to be a friend with benefits   

For EU financial institutions, the discovery that President Trump’s plans to ‘do a big number’ on Dodd Frank were a bit performance-lite was somewhat disappointing.

Leading the charge, Commodity Futures Trading Commission (CFTC) acting Chairman J. Christopher Giancarlo’s pledge to KISS (Project KISS – Keep It Simple Stupid – an agency-wide review of CFTC rules, regulations and practices to make them simpler, less burdensome and less costly) amounted to nothing more than the House GOP introducing a Bill overturning the DOL Fiduciary Rule.

But all is not lost, as Giancarlo appears to have benefits beyond his KISS.

Joining in on the euro clearing relocation debate, he said that if the EU decides that euro-denominated derivatives must be cleared in the EU, instead of London where they have historically been handled, that would in turn raise questions about the US position.

“If the whole world were to go to that regime, I think that would actually be detrimental to global markets, to global trade, to the dollar standing as the world’s reserve currency”.

The EU have made this about systemic importance, not specifically euro clearing.  Given that LCH manage the bulk of euro-denominated clearing, it would be difficult to call them out without also calling out the CME in the US.

Interesting times, n’est ce pas?

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