On 3 October 2018, the European Securities and Markets Authority (ESMA) published a speech, The state of implementation of MiFID II and preparing for Brexit, given by its chair, Steven Maijoor.

The first part of the speech covers MiFID II and is dealt with in a separate blog entry.

The second half of the speech focuses on Brexit, covering: (i) relocation and consistent regulatory and supervisory standards; (ii) improving the third country arrangements in securities markets legislation; and (iii) preparing for a no deal Brexit.

In relation to third country arrangements in securities markets legislation, Mr Maijoor welcomes the increased responsibility given to ESMA under the European Commission’s legislative proposal under the review of the European Supervisory Authorities, but states that there remain other areas where third country arrangements could be improved. Mr Maijoor mentions in particular a need for a harmonised EU regime for third country trading venues. In his view a harmonised third country regime would contribute to a level playing field between EU and non-EU trading venues and mitigate stability risks. In Mr Maijoor’s view, such regime should:

  • cover all types of trading venues;
  • cover in one equivalence decision all purposes for which they would need to be recognised (for example, placing of trading screen, post-trade transparency and trading obligations);
  • ensure that third country trading venues accessing the EU comply with requirements that are equivalent to those for EU trading venues; and
  • establish one point of entrance to the EU with effective supervisory tools.

Mr Maijoor also explains that given the importance of the UK financial market to the EU, a no deal Brexit would affect a number of MiFID II calculations that are performed at the EU level. ESMA is currently working to identify those effects, to find the most efficient way to limit the impact for EU27 financial markets.

In terms of central clearing of derivatives, Mr Maijoor notes that the current EMIR framework does not allow ESMA to recognise central counterparties (CCPs) based in the UK as third-country CCPs as long as it is a Member State. This results in uncertainty about continued access to EMIR-recognised CCPs. To respond to the possible risks to EU financial stability, Mr Maijoor is of the view that there must be continued access to UK CCPs for EU clearing members and trading venues. Such continued access is in line with the EMIR 2.2 proposal which Mr Maijoor is supportive of. He calls for a swift conclusion of the EMIR 2.2 legislative file, complemented by a transitional provision allowing for the continued access to UK-based CCPs, subject to conditions ensuring that UK CCPs continue to comply with EMIR requirements and colleges continue to monitor this compliance.

Finally in case of a no deal Brexit Mr Maijoor states that ESMA should have in place with its UK counterparts the type of memorandum of understanding (MOU) that it already has with a large number of third country regulators. ESMA plans to start negotiations with the FCA with the objective of having the MOUs in place before the end of March 2019.