Equivalence Process Should Not Be Political

Shanny Basar

The Financial Conduct Authority said the UK is prepared for leaving the European Union but some issues are outstanding, including the share trading obligation and clearing.

Nausicaa Delfas, FCA

Nausicaa Delfas, executive director of international, and member of the executive committee at the FCA, gave a keynote address at the City & Financial 5th UK Financial Services Beyond Brexit Summit in London this morning.

Delfas said the UK regulator has prepared for scenarios including leaving the European Union without a deal. The FCA has addressed the biggest risks by taking actions such as putting a temporary permission regime in place and signing memoranda of understanding with European supervisors an national authorities.

She warned: “However these solutions are patchwork and some further actions are still required.”

Two areas Delfas highlighted were the share trading obligation and clearing. In March the European Securities and Markets Authority announced that after Brexit, EU firms will have to trade certain shares and derivatives on EU or equivalent venues, even if most liquidity is currently in London.

Delfas warned at the time that this would conflict with the UK’s own share trading obligation and in May  Esma said the share trading obligation would not be applied to 14 UK shares included in its previous guidance. However the requirements for dual listed shares after Brexit have not been agreed.

In clearing there has been debate over whether UK clearing houses and central securities depositories will be granted equivalence by EU regulators. In February this year the Esma granted temporary equivalence until March 2020 to three UK CCPs –  LCH, ICE Clear Europe and LME Clear – and the UK CSD in the event of a no-deal Brexit, so they can continue to serve EU-based clients and minimise disruption to financial markets

Delfas pointed out that on the day that the UK leaves the EU, they will have identical rule books and a common supervisory approach.

“Equivalence should be based on outcomes rather than going through legislation line by line,” she added. “The decision should be based on a technical assessment as used by the EU currently, rather than on politics.”

The Association for Financial Markets in Europe warned in July that there needs to be more certainty over clearing.

AFME said in a report: “Unless certainty is provided as to the extension of recognition, UK CCPs might be required to start off- boarding processes for EU27 members by the end of 2019.”

Post-Brexit opportunities

Catherine McGuinness, chair, policy and resources at the City of London Corporation, highlighted the UK’s launch of the Green Finance Institute in July and the hosting of COP 26 in 2020 as evidence of the country’s lead in sustainable finance.

Anne Marie Verstraeten, UK country head at BNP Paribas Group, said on a panel at the conference that London will remain a global centre for sustainable finance and innovation and technology, especially fintech.

H.E. Liu Xiaoming, Chinese ambassador to the UK, added in a keynote speech that there are multiple opportunities for the two countries in green finance and fintech.

He continued that next week China Construction Bank will celebrate five years clearing renminbi in London.

In June the London Stock Exchange also launched Shanghai-London Stock Connect.

Verstraeten said: “Shanghai-London Stock Connect gets our attention as a global group. It is the first time that investors can access China A shares from the London Stock Exchange.”

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