On 5 March 2019, the Association for Financial Markets in Europe published a letter sent alongside a number of European and international financial bodies (including the FIA; ISDA; AIMA; and the EBF) (collectively, the Industry Bodies) to European Commission Vice-President Valdis Dombrovskis on the equivalence of UK derivatives trading venues under EMIR and MiFIR.
The Industry Bodies welcome the European Commission’s adoption of temporary equivalence decisions with respect to UK central counterparties (CCPs) and central securities depositories and the measures to facilitate novations of derivatives transactions from UK to EU27 counterparties.
The Industry Bodies are still, however, concerned about the disruptive impact on EU27 market participants and European derivatives markets if the Commission does not take urgent action with respect to the recognition of UK derivatives trading venues under EMIR and MiFIR in a no-deal scenario.
Concerns are noted as stemming particularly from the fact that:
- UK exchange-traded derivatives will be reclassified as OTC derivatives in the absence of an equivalence decision under Article 2a of EMIR. This is noted as having a potentially significant impact on non-financial counterparties (NFCs) and small financial counterparties;
- EU27 counterparties will not be able to satisfy the derivatives trading obligation by trading on UK venues. In the absence of an equivalence decision by the Commission under Article 28(4) of MiFIR with respect to UK multilateral trading facilities (MTFs) and organised trading facilities (OTFs), EU27 financial counterparties and NFCs would, after the UK leaves the EU in a ‘no-deal’ scenario, cease to be able to execute transactions in OTC derivatives subject to the trading obligation under MiFIR on those venues; and
- there should be no obstacle to the Commission making an equivalence determination as to the UK’s legal supervisory and enforcement regime with respect to UK trading venues under EMIR and MiFIR. Under the European Union (Withdrawal) Act 2018, the regulatory requirements currently applicable to UK trading venues will continue to apply after the UK leaves the EU in a ‘no-deal’ scenario, with necessary modifications to reflect the UK’s status outside the EU.
The Industry Bodies urge the Commission to prepare the necessary implementing acts to recognise the equivalence of UK derivatives trading venues with a view to those acts taking effect at or very shortly after the UK leaves the EU without a deal. The Industry Bodies further suggest that the Commission could consider a temporary or limited equivalence decision such as that made with respect to UK central counterparties and central securities depositories.