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Markets and Securities Services |
Europe
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continued access either through equivalence or
grandfathering provisions. Likewise, preventing
UK firms from using the passporting opportunities
afforded by the prospectus regulation or benefiting
from the STS securitisation designation would
further limit investment opportunities for
continental investors.
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The CMU presents a unique opportunity because it
is comprehensively ambitious, is largely unformed
and covers an area where both the UK and the
EU have acknowledged the need for increased
integration. While there are a few opportunities
to actually embed equivalence provisions in
regulations that have yet to be formally proposed
or are in trilogue negotiations, the biggest
opportunity lies in shaping the debate in the
various reports and working groups developed in
ways conducive to advancing the CMU agenda.
For example, the EC’s efforts studying the impact
of fragmented markets within Europe for crowd-
funding, personal pensions, etc., all present
opportunities to look at the toll that separation of
the UK and the EU capital markets will exact on
both jurisdictions. Likewise, they provide a potential
vehicle to help advocate a robust equivalence
framework when the rule-making process begins.
In addition, capital markets considerations provide
strong justification for a bespoke agreement that
would efficiently preserve much of their current
integration and scale. As CMU’s multi-pronged,
multi-track nature demonstrates, capital markets
are arguably harder to integrate than certain
other types of retail and wholesale markets
(such as derivatives trading). Consequently, they
are more likely to be negatively affected by the
current framework of limited equivalence on a
provision-by-provision basis within regulations. A
bespoke agreement providing for market access
on a comprehensive basis, justified by exact
regulatory alignment, would be an arguably
more effective way to ensure that any market
split is not due to gaps in market access.
To underscore the potential for the CMU to act
as a bridge during Brexit, all of the recent CMU
areas of focus play to UK strengths. The UK has
proven to be a leader in sustainable finance,
especially led by the Bank of England’s review of
the impact of climate-change risk on its statutory
activities. Likewise, the FCA has been a world
leader in regulatory support of FinTech through
its innovation hub and regulatory sand box. Lastly,
the UK could possibly negotiate acceptance of
ESMA supervision of certain activities as a means
to obtain market access after Brexit, which could
be especially valuable if ESMA’s remit were to be
expanded in the asset management space.
Conclusion
While there has been an impressive amount
initiated by the Commission, virtually the entirety
of the CMU agenda has yet to be finalised. This
means that asset managers have an important
opportunity to shape the debate, both in the
narrower sense of specific CMU workstreams and
more broadly in terms of how capital markets
considerations should factor into the posture
of UK and EU negotiators.
Firms certainly have the ability to respond to
the wide range of consultations and regulatory
proposals that are currently, or will soon be,
opened, and all have opportunities to engage
national regulators and the EU institutions on those
initiatives still stuck in negotiations. More broadly,
firms should take a step back from the deluge
of near-term compliance and implementation
challenges they are currently grappling with to
recognise the CMU’s enduring potential and their
power to change its direction. Especially since
EU capital markets would be dramatically
strengthened if the CMU could be used as a
mechanism for continued access in both directions
after Brexit. It is a potentially valuable bargaining
chip that the UK government should be mindful of
as it enters into negotiations, and asset managers
should be proactive in highlighting the importance
of capital markets issues.
Dominic B. Muller
Manager
PricewaterhouseCoopers LLP
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Simple, transparent and standardised.