19 January 2021

Brexit: de-regulatory Big Bang 2.0

This is the latest news on the impact of Brexit on the fund industry (curated by our experts).

1. UK Latest: mixed signals continue

Following Mr. Johnson’s recent request for “red-tape cutting” ideas and his Finance Minister’s prospective de-regulatory “Big Bang 2.0“, the UK government are now reportedly actively recruiting for a ‘head of UK capital markets’ to develop their post-Brexit financial services sector. With the local “rulebook now entirely set in the UK”, the successful candidate’s “immediate objective” is to “reshape regulation” and “scope out potential improvements to the rules that the UK inherited from the EU.”

In response, the FT reports several London-based CEOs (including those representing M&G, Fidelity, IG Group and Allianz Global) warning against a plan of post-Brexit de-regulation. They suggest instead GovUK should “pursue a strategy of ‘re-regulation’ …with the aim of creating a financial universe fit for the 21st century”.

TheCityUK association state also that their members are “broadly content with the EU legislation currently on-shored.”

2. European associations: favour UK ‘equivalence approach’

 EU policymakers should take a forward-looking approach, focusing on new legislative initiatives …this would be a sound and pragmatic approach to the concept of equivalence, somewhere in the middle of an outcomes-based approach versus a line-by-line equivalence”.

Contrary to those MEPs citing tax and money laundering concerns, most European fund associations are backing the prompt conclusion of a financial services Memorandum of Understanding (MoU); if achievable, this would enable differing (UK, EU) fund regimes to be classed “equivalent” (and co-exist on a reciprocal basis).

Ignites Europe reports ALFI members collectively favouring  GovUK’s approach to equivalence judgments (outlined in a post-Brexit overseas fund regime (OFR) consultation paper from March 2020). The European Fund and Asset Management Association (EFAMA) opine that the MoU should be concluded as soon as possible “…to increase predictability and legal certainty for market participants on both sides”.

3. EC: MoU deadline ‘will slip if UK diverges’

 “As we have seen with the Brexit negotiations themselves, it is very difficult to put a clear timeline on an agreement. March 31 is not a hard deadline.” – Almorò Rubin de Cervin, DG FISMA

FISMA is the European Commission’s Directorate responsible for financial stability , financial services and the capital markets union. Last week, their departmental head warned that if the UK were to issue “excessive demands” for divergence from for EU legislation, any financial services MoU “could be postponed”, causing continued interim uncertainty for cross-border fund firms operating in the UK and the EEA.

4. ESMA: some firms ‘trying to circumvent’ MiFID II rules’

 ESMA’s statement is a shot across the bows to firms that have not accepted Brexit”.

Last week, European Securities and Markets Authority (ESMA) posted a public statement reminding firms of their MiFID II reverse solicitation rules, following “questionable practices by some firms trying to circumvent” requirements since 31 Dec 2020.

Reverse solicitation (AKA ‘reverse enquiry’ or ‘passive marketing’) is the EU principle where an investor directly requests investment services (i.e. on their own initiative) from providers authorised to operate within the EU single market.

ESMA warned all investment service firms that insufficient authorisation risks criminal & administrative proceedings alongside EU investors’ loss of protective measures.

Associated media coverage includes an anonymous “policy expert” speculating that ESMA’s statement indicates EU policymakers are “likely to take a tougher stance on pre-marketing activities” from firms outside the EU (with “some member states taking a stricter view than the UK”).

5. AFM expands Dutch market supervision

The Dutch regulator (Autoriteit Financiële Markten – AFM) have now published their 2021 Agenda.

Stating they are now “certain that Brexit will mean an expansion of our remit”, they admit “the full impact of this is still difficult to assess”.  While anticipating “expanding our supervision of multiple, complex instruments, institutions and systems”, the AFM are unable to assess “which part of the trade in financial instruments will eventually relocate to the Netherlands.”  Meantime, they warn “…a hard Brexit presents a risk to the stability of the markets.”

6. UK Data Protection Regime ‘adequacy’: no EC update

There has been no formal EC update regarding the UK’s long-term position as a third country outside the GDPR regime.

Meantime, one notable legal firm has published an article summarising the key areas of change to post-Brexit data protection laws.

Activities listed to ensure companies continued GDPR compliance include:

  • Appointing additional data protection representatives.
  • Restructuring data processing operations where necessary
  • Address potential new ‘restricted transfers’ instances
  • Update required documentation (e.g. privacy notices, data processing contractual arrangements and internal policies).


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