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Global Trustee and Fiduciary Services News and Views
| Issue 48 | 2017
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diminish the role of Member State regulators
— who may have national agendas to advance.
Also, the Commission suggests increasing the
areas that the ESAs enjoy direct oversight.
Currently, the ESAs regulate credit-rating
agencies and trade repositories directly with
additional authorisation powers (especially in
terms of third-country equivalence) across other
regulations. However, the Commission would
like to see the ESAs enjoy comparable authority
over pan-EU investment fund regimes, as well as
a wider range of financial market infrastructure.
Doing so would go a long way to creating
increased regulatory cohesion without whole-
scale changes to existing EU law. While EU
regulation covers more and more financial
market activity, and while more and more of
such regulation is directly applicable, Member
States have wide discretion around enforcement
priorities. Given the scale of post-crisis
regulation, many regulators are selecting certain
areas to focus on at the expense of others.
To take one example, the UK’s Financial Conduct
Authority (FCA) continues to focus on MiFID
reporting failures while so far refraining from
fining firms for their widespread problems under
EMIR (both in terms of transaction reporting and
in terms of other areas). It is not unsurprising
that the only entity to be fined under EMIR so far
has been DTCC Derivatives Repository Limited,
which, as a trade repository, is directly regulated
by the European Securities and Markets
Authority (ESMA). Likewise, it is widely known
that national regulators within the EU will wait
awhile before enforcing the new EMIR margin
rules. While there are broader reasons for such
restraint — in many jurisdictions firms
have been formally given an extended
implementation timeline — it underscores
that regulators frequently make strategic
decisions as to how EU regulation is enforced.
Such selectivity can result in uneven application
of regulation across borders, thereby creating
variable, sometimes unknown costs to business,
which can be an impediment to cross-border
investment. The EU clearly feels that this problem
is especially acute in the investment fund space.
Brexit
The acknowledged fragility of the EU’s capital
markets, and the current reliance on London as
a capital markets ecosystem, argues for a more
comprehensive assessment of the challenges posed
by Brexit for the CMU than has currently been
attempted. The Commission has already referenced
Brexit in various CMU communications to support
the idea that the CMU is needed now more than
ever, as tighter integration on the continent will be
necessary. But, the CMU can also be a mechanism
to advance market integration in the interests of
both the UK and the EU27, despite Brexit. The fact
that this has not been an area of focus for firms,
the UK government and the EU is a potentially
missed opportunity that can still be seized.
Other than amendments to the prospectus rules,
none of the other major CMU initiatives are close
to being finalised. Whether these take the form of
concrete regulations or less immediately applicable
reports and horizon-scanning analysis, they all
present an opportunity to expand the potential for
market access through equivalence. For example,
UK VC funds benefiting from designation as
EuVECAs could still benefit European investors by
The Commission has already referenced
Brexit in various CMU communications to
support the idea that the CMU is needed
now more than ever. But the CMU can
also be a mechanism to advance market
integration in the interests of both the UK
and the EU27.