Investment Management Update
This issue includes:
- No-deal Brexit MoU with FCA and PRA: EBA agrees template
- Share trading obligation: ESMA’s statement on the implications of Brexit
- Brexit SI: Financial Regulators’ Powers (Technical Standards etc.) and Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2019 (SI 2019/576)
- Brexit SI: Financial Services (Distance Marketing) (Amendment and Savings Provisions) (EU Exit) Regulations 2019 (SI 2019/574)
- Brexit SI: Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/541)
- Brexit SI: Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 (SI 2019/589)
The European Banking Authority (EBA) has published a press release announcing that the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the EBA have agreed a template Memorandum of Understanding (MoU). The template sets out the expectations for supervisory cooperation and information-sharing arrangements between UK and EU/EEA national authorities. Once signed, the bilateral MoUs will allow uninterrupted information sharing and supervisory cooperation post-Brexit. The MoUs will only take effect in the event of a no-deal scenario. Further information can be found in the FCA press release and the PRA press release. In February 2019, the FCA agreed a MoU with the European Securities and Markets Authority (ESMA) and EU regulators to enable delegation models post-Brexit. See our update of 13 February 2019 for more detail on this.
ESMA has published a statement on the application of the share trading obligation in the event of a hard Brexit which has some unwelcome implications. Under MiFID II/MiFIR, European firms may only undertake trading of EU-traded shares on European venues or third-country venues that have been deemed equivalent (the “share trading obligation”). In a hard Brexit, UK venues will become third country trading venues and therefore European firms will not be able to trade a share on UK venues if it is also traded on an EU venue unless the UK venue is assessed as equivalent. This has the potential to create significant market disruption and impact the ability of market participants to obtain best execution post-Brexit.
However, rather than recognise the UK venues as equivalent, ESMA has deemed that all European shares and 14 UK shares with significant liquidity in the EU must be traded on a European venue in accordance with the share trading obligation. This is regardless of the relative trading volumes and ease of execution of the European venue in comparison to the UK venue. The FCA has been critical of this but as of yet, no UK equivalence decision has been made in respect of European venues. Absent any decision or guidance from the FCA or HM Treasury, UK firms would be required to trade dual-listed shares on UK venues. See our in-depth article for a further discussion on these issues.
HM Treasury has published the Financial Regulators’ Powers (Technical Standards etc.) and Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2019 (SI 2019/576), together with an explanatory memorandum. The statutory instrument (SI) was made on 14 March 2019 and makes amendments to the 2018 Brexit SIs. See our update of 13 February 2019 for more detail on the SI. See our following updates for discussions on the 2018 Brexit SIs:
- 7 November 2018 – Financial Regulators' Powers (Technical Standards etc.) Regulations 2018; and
- 10 October 2018 and 24 October 2018 - Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018.
The Financial Services (Distance Marketing) (Amendment and Savings Provisions) (EU Exit) Regulations 2019 (SI 2019/574) has been made and is published alongside its explanatory memorandum. The purpose of the SI is to make amendments to the Financial Services (Distance Marketing) Regulations 2004 to ensure that those Regulations continue to operate effectively in the UK post-Brexit. See our updates of 13 February 2019 and 19 December 2018 for more detail on the SI.
HM Treasury has published the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/541), accompanied by an explanatory memorandum. The SI, made on 11 March 2019, addresses deficiencies in relation to the EU’s equivalence framework and retained EU law that result from the UK’s withdrawal from the EU. See our update of 30 January 2019 for a further discussion on the SI.
The Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 (SI 2019/589) has been made and is published alongside its explanatory memorandum. The SI makes amendments to the Financial Services and Markets Act 2000 (Gibraltar) Order 2001, the Financial Services and Markets Act 2000 and the EEA Passport Rights (Amendment, etc., and Transitional Provisions) (EU Exit) Regulations 2018. The SI will allow financial services firms authorised in Gibraltar to continue to provide services and establish branches in the UK. The government of Gibraltar will be adopting a similar and reciprocal approach to the UK in its own "EU Exit legislation". For more detail on the SI, see our updates of 16 January 2019 and 30 January 2019. See our update of 13 February 2019 for a discussion on the Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations.
The FCA has published a press release on the first meeting of the PRA and the FCA’s Climate Financial Risk Forum (CFRF). The objective of the CFRF is to share best practice across financial regulators and the industry to advance responses to financial risks from climate change. The forum brings together senior representatives from across the financial sector, including banks, insurers and asset managers.
The FCA states that firms are enhancing their approach to managing risks, but face barriers to implementing the forward-looking, strategic approach necessary to minimise the risks. The CFRF aims to reduce these barriers by developing practical tools and approaches to address climate-related financial risks.
The forum has set up four working groups to focus on risk management, scenario analysis, disclosure and innovation. The aim is to produce practical guidance on each of the four focus areas. The final outputs will be shared with industry more widely. Membership of the working groups will be wider than the forum to allow them to draw on expertise as necessary, such as from academia and industry.