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Luuk Jacobs

A bit of light at the end of the financial services tunnel .....

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Luuk Jacobs

We all know the status of the overall Brexit agreement. At least for the investment management some positive news with the below "temporary equivalence determination for UK CCPs "

 

Yesterday, the European Securities Committee unanimously endorsed draft Implementing Acts providing for a 12-month temporary equivalence determination for UK CCPs and a 24-month temporary equivalence determination for UK CSDs in the event of a no deal Brexit.

Importantly, the Implementing Act for UK CCPs is not limited to the clearing obligation only. Instead, it covers any clearing services offered by a UK CCP to EU clearing members and venues. Likewise, the Implementing Act for UK CSDs is a wholesale equivalence decision under CSDR framework to allow for uninterrupted access post-Brexit on a time-limited basis.

We understand the European Commission will formally adopt the Implementing Acts in the 19 December College meeting next week – enabling them to become legally binding should the UK and the EU not conclude the Withdrawal Agreement before 29 March 2019. Members should note that the Implementing Acts only cover a possible no deal Brexit scenario, and are clear that they do not set a precedent for negotiations on equivalence during a transition period with the UK, should there be one.

We also note the Implementing Acts are limited to UK CCPs and CSDs only, and does not extend to cover UK trading venues in the event of a no deal Brexit. Under MiFID/MiFIR, the UK would need to be deemed equivalent by the EU, and UK trading venues would need to be recognised by ESMA, for certain trades to be executed through UK venues (such as those caught by the Share Trading Obligation or Derivatives Trading Obligation in the EU). Nothing, however, would prevent a UK entity trading through a UK venue or elsewhere outside the EU.

While the UK Government made clear it will recognise EU trading venues as part of its technical notices on no deal planning in August, we are yet to see the same on the EU side. We will continue to keep you updated on this issue, but in our view much of the impact of a no deal Brexit will depend on a broker’s ability to segment their trading into EU and non-EU trading, and prepare the necessary legal structures to underpin its operations. It is critical that the buy side drive their brokers to prepare for a no deal Brexit scenario.

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