The European Securities and Markets Authority and the UK’s Financial Conduct Authority approved a memorandum of understanding to exchange information about financial firms’ cross-border activities.
A spokesman for Esma and a spokesperson for the FCA separately told Delano on Friday morning that Esma’s board had “agreed in substance the MoU”. Esma then issued an official press release (PDF) on Friday afternoon.
According to Esma’s announcement:
“The MoUs form part of authorities’ preparations should the UK leave the EU without a withdrawal agreement, the no-deal Brexit scenario. The MoUs will therefore only take effect in the event of a no-deal Brexit scenario. The MoUs are similar to those already concluded on the exchange of information with many third country supervisory authorities.”
Reuters first reported the agreement on Thursday. The news agency explained that:
“Britain is due to leave the EU on March 29 and an MoU is a standard feature of supervisory relations between the bloc and non-EU countries.
“An MoU is critical for the funds industry, particularly as Britain could crash out of the bloc in two months’ time unless it comes up with an agreed divorce settlement with Brussels.
“Without an MoU there could be no ‘delegation’, or asset managers in Britain making investment picks for funds listed in Dublin, Luxembourg or elsewhere in the EU.”
Marc-André Bechet, director of legal and tax at the Association of the Luxembourg Fund Industry, told Delano on 1 February that:
“The announcement made by Esma that MoUs are currently being negotiated with UK regulators and that it expects agreement to be reached sufficiently in time before 29 March 2019 is indeed excellent news for the asset management and investment fund community. It is a relief to all asset managers operating in the EU27 that rely on delegation of portfolio management and/or risk management to authorised undertakings in the UK. There is now reasonable assurance that this will remain possible post Brexit. Through this announcement, Esma also gives an important signal to all operators in terms of market stability”.
The trade group said earlier this week that: “More than 18% of assets under management in Luxembourg funds are managed by asset managers based in the UK.”
Chris Cummings, chief executive of the Investment Association, the UK’s fund industry trade group, said in a statement to Delano:
“Today’s announcement that the text of a memorandum of understanding between Esma and the FCA has been approved brings much needed certainty for asset managers seeking to finalise contingency plans, and we look forward to reviewing the detail.
“These agreements ensure that delegation of portfolio management, and the necessary exchanges of information needed for the orderly functioning of markets, can continue regardless of the outcome of the Brexit negotiations. This is welcome news for millions of savers across Europe who together have some £1.8 trillion of savings managed by experts in the UK. Asset managers--and critically their clients--will now have the confidence they need that delegation to the UK will continue.
“We look forward to the FCA and the other EU27 regulators signing these MOUs without delay.”
FCA issues hard Brexit guidance
In a separate announcement, the FCA said that, in case of a no-deal Brexit, draft legislation would “ensure that firms and other regulated persons can generally continue to comply with their regulatory obligations as they did before exit,” on an interim basis.
“This will give firms certainty, ensure continuity, and reduce the risk of disruption,” Nausicaa Delfas, executive director of international at the FCA, stated in a 1 February press release.
The UK regulator said financial outfits “by exit day” should be prepared to comply--or show evidence of “reasonable” preparations to comply--with EU rules such as Mifid 2 and EMIR reporting obligations, the Bank Recovery and Resolution Directive, and the use of credit ratings, among others.