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19 July 2017

不安定なリーダーシップの下で幕開けした離脱協議


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The talks over the disconnection of the UK from the EU begun and the picture of the meeting showed a clear imbalance: Michel Barnier boasted about EU27 unity and brought a stack of papers; David Davis wasn’t carrying any documents, but growing political dissent at home could be heard from Brussels.


Graham Bishop/Paula Martín

Organised by the Centre for the Study of Financial Innovation (CSFI) with co-presenterConor Foley (Norton Rose Fulbright)

This blog covers the key subjects since our last meeting that I hoped to cover but, as always, we ran out of time to deal with them all. As a Friend, you can watch the 24th `structured’ CPD web-cast with CISI (to be done on 1st August on this occasion). These Notes may be read to record a further 30 minutes of `structured CPD’, including a dipping into the links to the underlying stories.

Highlights from the “Brussels for Breakfast” meeting

As we met, the deadline was closing for UK financial institutions to report their detailed “Brexit” plans to their regulator. On the other side of the Channel, EU regulators (ESMA, SSM, EIOPA) are making it ever more clear that naïve, un-researched  claims by Leavers that nothing would change except for a wave of “brass plates” around the EU were always just an exercise in “whistling” - mainly in the dark. Instead, the sound of the “ticking clock” is getting louder.

Inevitably, the beginning of serious Brexit negotiations overshadowed the discussions and the problem of residence rights featured as the feeling was that the UK did not understand the magnitude of the problem. My comments about my attendance at the Paris Europlace meeting earlier in the week also proved controversial as it is quite clear that Paris – as a major city and financial services centre – is positioning itself for the jobs and revenue that the UK has decided to push out.  Can this cost be minimised by some sort of transition arrangements such as EEA membership? My argument continues to be that the transition cannot be decided until the shape of the final deal is clear and by then there will not be enough time to go through the probable legal arrangements to make the transition operation fully by 29 March 2019 – even if the EEA will have us for a short period!

The Hamburg G20 Summit committed to working to finalise the Basel III accord but “without increasing overall capital requirements” for banks. The US is pushing for a result that gives an “output floor of 75%” of the models but the EU wants it at no more that 70% -- indeed French bankers would like to see it at 0%! However, US voices suggested that President Trump’s possible appointments were far more internationally minded so a compromise may well be possible once they are in office.

The discussion on the BRRD’s first use caused some dissent from the view that the market should now regard senior bank bonds as “sovereign backed”. The letter of the rules had been followed and the genuinely bail-in–able characteristic of such bonds would become fully apparent in the future.  Yet again, the debate on CCPs came back to the question of whether this is a land-grab by the Eurozone – especially France – or whether it is simply following the global push launched by UK PM Gordon Brown in 2009for the central bank of issue (in this case the ECB for euros) to have ultimate control. This topic will surely be continued!

*****

 

These Notes for the Friends of Graham Bishop will be supplemented by our full Workbook for our CPD clients (link) – in conjunction with the 30-minute CISI webcast. Our new Brexit &UK service (link) provides further detailed news on relevant developments in financial services.

Key items in the rest of the month’s news included:

The EU-UK Brexit talks kicked off on 19th June, and almost a year after the vote that decided Britain’s secession from the European Union, the British political scenario is in the midst of a major upheaval.  After the ‘unelected’ Prime Minister, Theresa May, lost her ample majority in the polls, the tables turned so that her very post is now threatened– a Tory caucus has formed to press the party to jettison May as Conservative leader - and the Government has been forced to seek political support from the Northern Irish Democratic Unionists. More than a third of the British public said that the result of the election could hinder the likelihood of a good Brexit deal.

The UK Government issued its proposals on the rights of EU citizens living in Britain after Brexit, which included settled residency status for those who arrived in the UK five years before a cut-off date. The offer was dismissed by European Parliament negotiators such as Guy Verhofstadt as a ‘damp squib’ that risked creating second-class citizenship for Europeans. Former Lib-Dem Deputy Prime Minister Nick Clegg wrote in the FT that May’s administration should curtail its rejection of free movement in order to maintain Britain within the single market. However, there will be no ‘softening’ of UK’s negotiating position, British top Brexit negotiator Davis stated, and a trade deal could be secured by 2019. But this stance might tone down due to the fact that  a majority of newly elected Conservative MPs backed Remain in the EU referendum campaign, an FT analysis showed, suggesting they might influence the form of Brexit that May’s team will pursue.

The ‘Great’ Repeal Bill might not be that great after all: David Davis presented the Repeal Bill document and said it wouldn’t mean key changes but lighter tweaks of EU legislation so it does work in the UK after departing the bloc. It did, nevertheless, highlight the issue of the new relationship with Northern Ireland as a major point of focus: after leaving the EU, the status of the UK’s land border with the Republic of Ireland will inevitably change. The withdrawal bill received a cool response from the opposition, underlining May’s cabinet weakness: Labour MP Keir Starmer warned that his party would defeat the Government if it wasn’t listened to, while the Scottish and Welsh Government issued a joint statement saying the Bill is “an attack on the founding principles of devolution” that “could destabilise” their economies.

The situation is becoming even more entangled and the UK has no plan B if Brexit talks fail-as Boris Johnson stated before Parliament, undermining May’s threat of walking out of a ‘bad’ Brexit agreement.  May team’s weakness was increased by information reported by Sky News, which revealed that at least 30 Conservative MPs had indicated to their own Government that a ‘no deal’ Brexit scenario would be unacceptable. The opinion is unanimous among British business: the practical totality of UK bosses surveyed  by British Chambers of Commerce rejected this extreme option too.  Chancellor of the Exchequer Philip Hammond also distanced himself from May saying it would be “madness” for the UK to reject the closest possible ties to the European Union.

It seems that ‘bloody difficult’ Britain has already blown its chances of a good deal,former negotiator Steve Bullock wrote. On the opposite side of the table, the EU 27 seemed determined in their willingness to display a strength and unity that Brexit might have helped to build: chief EU negotiation Michel Barnier told the Economic and Social Committee Brexit ‘is going to hurt’ – it may be as bad for the UK as European public surveyed by the Pew Research Center think  it  will be for the EU, but it has contributed to improve the Europeans’ opinion about the EU.

German industry said theirpriority is to protect the single market and not to secure a good trade deal to benefit exports, in a sign that the country won’t be an ally in softening the EU’s stance in Brexit talks. Germany and France partnered in efforts to make large amounts of financial business relocate from Britain: Frankfurt Main Finance and Paris EUROPLACE published a joint request for European authorities to clarify after-Brexit regulation regarding the clearing of euro-derivatives in The City. Whereas Frankfurt seems to be leading the way to become the next number one global financial hub after London is stripped of the lucrative euro-clearing business, Paris hasn’t given up the battle and has announced tax cuts to drag financial jobs to the French capital. Graham Bishop assessed the best way for UK-based banks and insurers to achieve their goal of continuing their business in the EU – but cost-effectively. For insurers, EIOPA issued its principles on supervisory approach to the relocations from the UK.

Even if banking and finance are lured onto mainland Europe, they might end up having to use English common law after all, as it is the choice of law for financial contracts in the EU – but how will these contracts be enforced? Bruegel think tank studied the case.

The ECB’s Cœuré said that the UK’s decision to leave the EU is prompting a significant rethink of the European approach to the supervision of systemically important global CCPs. Graham Bishop acknowledged the “solid rationale for the EU to propose fresh legislation to safeguard its financial stability upon the departure of a major member that is home to the key parts of its financial infrastructure.” But Bank of England Governor thinks otherwise:  Mark Carney said that splitting Europe's market for clearing euro-denominated derivatives would do little to shore up European financial stability. The Financial Times explained the terms of the Commission proposal of joint supervision: UK based CCPs can continue to clear the lion’s share of euro-denominated securities and derivatives after Brexit, but those deemed by the EU to be systemically important must accede alongside UK jurisdiction to that of the EU.

The ECB recommended amending Article 22 of its Statute to
provide the legal basis for the Eurosystem to carry out its role as central bank of issue under the currently proposed review of EMIR.   Commenting on the measure, Simon Lewis, Chief Executive at AFME, demanded “greater clarity on terminology such as 'substantially systemically important’ CCP.”

Banking

European authorities have started to focus on attacking the roots of the burden that’s hindering growth in EU banking: the Council agreed an action plan to address the problem of non-performing loans in the banking sector, while the ECB published its second stocktake of national supervisory practices and legal frameworks related to NPLs in the euro area.Banking

ECB's Constâncio addressed structural challenges faced by the banking sector in the EU and advocated a coordinated European NPL strategy:NPL resolution, though not a panacea for all banking problems, could bring significant benefits, the official said.  ECB'sNouy referred to NPLs andaddressed the supervisory implications of Brexit, as well as some crucial issues in the risk reduction package which is currently under discussion.   The EBA’s updated Risk Dashboard summarised the main risks and vulnerabilities in the EU banking sector and showed stable capital levels amidst efforts to improve banks asset quality and profitability.

The Basel Committee reported to G20 Leaders on Basel III implementation and consulted
on a simplified alternative to the market risk standardised approach
. The FSB published the Global Shadow Banking Monitoring Report 2016 to assess global trends and risks in the shadow banking system.  

The new Recovery and Resolution rules were tested in Spain with Banco Popular Español being resolved ahead of its failure, which avoided bailing out the bank with taxpayer’s money. The EBA acknowledged notification on the resolution action taken by the SRB and by FROB in respect of the Spanish bank. ECB's Angeloniexplained the banking union regulation features andoutlined practical experience had so far with the handling of troubled banks in the EU.   But the imperfect liquidation of Italy's  Veneto Banca reminded EU officials that EU banking union still has far to go – a financial integration the FTencouraged. The European Parliament published a briefing on precautionary recapitalisations under the Bank Recovery and Resolution Directivefocusing on the possibility provided by the BRRD to recapitalize a bank outside resolution.

The European Central Bank published the text of the Emergency Liquidity Assistance agreement, while new rules that aim at facilitating cross-border insolvency proceedings entered into force.

The EBA published its final Guidelines on authorisation and registration under PSD2, and responded to the Commission intention to amend the EBA TS for open and secure electronic payments under the PSD2. The EPC gave an update on the upcoming implementation of the SEPA Instant Credit Transfer scheme. The ECB informed it will develop a service for the settlement of instant payments, named TARGET instant payment settlement (TIPS), and scheduled to start operating in November 2018.

Securities
 

The Council agreed on adjustments to the Capital markets union action plan. The Basel Committee proposed capital treatment for simple, transparent and comparable short-term securitisations thatsupplements the consultative document “Criteria for identifying simple, transparent and comparable short-term securitisations” issued jointly with IOSCO.  

International agencies stepped up their work on CCPs:  the Basel Committee proposedits framework for supervisory stress testing of central counterparties and clearinghouses (the firewalls protecting the financial system from another Lehman-like catastrophe) were tested as if a major bank had failed during a market shock like the Brexit vote. They passed the exam.

 FSB, CPMI, IOSCO and BCBS published three guidance documents and two reports as part of their joint work-plan on central counterparty resilience, recovery and resolvability.  IOSCO and the Committee on Payments and Market Infrastructures released draft guidance for supervisory stress testing of central counterparties.

ESMA sent a letter to the European Parliament, Commission and Council updating them on MiFID II implementation.   City AM reported that the FCA set a deadline for compliance with the new EU securities rules, despite huge predicted costs.

The FSB reported on reforms to OTC derivatives markets, while ESMA provided guidelines for supervisory cooperationunder the Central Securities Depositories Regulation (CSDR) and  ICMA published a study into the state and evolution of the European credit repo market.

Asset Management

The European Commission launched a new pan-European personal pensions label that was welcomed by EIOPA, EFAMA and ALFI. Insurance Europe welcomed some of the Pan-European Personal Pension Product features and published an insight briefing demanding that the PEPP must be a true long-term pension product , whereas the Actuarial Association of Europe (AAE) called for amendments, saying that the requirement for the default option for a PEPP to offer capital protection could undermine the initiative.

Financial Services Policy

The European Commission published its feedback statement on the public consultation on the operations of the ESAs – the ECB contributed to the call for comments and said the ESAs must take into account developments which have taken place over the past six years.  The ESAs released their AML/CFT guidelines.

The G20 leaders met for discussions focused on sharing the benefits of globalisation, building resilience, improving sustainable livelihood and assuming responsibility.   The Financial Stability Board reported to the G20 Leaders on progress in financial regulatory reforms.  

The Commission’sFourth Anti-Money Laundering Directive entered into force as discussions with the European Parliament and the Council on extra measures further reinforcing the Directive were already at an advanced stage.  

The European Parliament consulted on a pan-European covered bonds framework while Spain called for “aggressive” and rapid reforms of the single currency area, including the creation of a powerful pan-European treasury and a mechanism to force through labour market and other reforms in recalcitrant member states.  

CPMI and IOSCO published further guidance on the principles and key considerations in the Principles for Financial Market Infrastructures (PFMI) that relate to recovery planning.   

FSB issued a report on the financial stability implications from FinTech. ESMA, Insurance Europe and ALFI responded to the Commission consultation on Fintech

 

 





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