Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
The impact of Brexit on securities services (so far)
19 Plays4 years ago
The transition period for the UK leaving the European Union (“Brexit”) ended on 31 December 2020. In the months before the transition period ended, the UK converted into law any existing EU regulations that had direct effect in the UK at the end of the transition period. During this “onshoring” process the UK in some cases made technical and other amendments to the legislation so that it would work in the UK after Brexit. EU Directives applying before 31 December 2020 already formed part of UK law, so did not need UK onshoring.
This episode is part of our Markets and Securities Services RegTalks series, covering regulatory topics from a global perspective that matter the most to you. For more information, click here
Hosted on Acast. See acast.com/privacy for more information.
Recommended
Transcript
Introduction to Podcast
00:00:02
Speaker
This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
00:00:11
Speaker
Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
00:00:20
Speaker
A heads up to our listeners that this episode is being recorded remotely, therefore the sound quality may vary.
00:00:27
Speaker
Thank you for listening.
00:00:28
Speaker
Welcome to the latest in our RegTalks podcast series.
RegTalks Series Overview
00:00:33
Speaker
In this series, we are featuring a variety of different topics and market developments that are currently trending in the markets and securities world.
Brexit Progress and Impact
00:00:42
Speaker
Now it's time for us to look at the progress of Brexit since the transition period for the UK, leaving the European Union, ended on 31st of December 2020.
00:00:53
Speaker
To do this, we have two colleagues from HSBC's Security Services Regulatory Product Team, Henry Ration, Director, Regulatory Outlook, and Jennifer Lowe, Senior Product Manager.
00:01:06
Speaker
Henry, over to you.
00:01:07
Speaker
Thank you, Gabriella, and good afternoon, Jennifer.
00:01:14
Speaker
Hello, good morning, Henry.
00:01:17
Speaker
Jennifer, can you explain to us, please, where we're up to on the process of Brexit?
00:01:25
Speaker
Yes, of course, Henry.
00:01:27
Speaker
As we know, the transition period ended on the 31st of December 2020.
00:01:33
Speaker
And in the months before the transition period ended, the UK converted into law any existing EU regulations that had direct effect in the UK at the end of the transition period.
00:01:46
Speaker
Now, during this onshoring process, the UK in some cases made technical and other amendments to the legislation
00:01:55
Speaker
that it would work in the UK after Brexit.
00:01:59
Speaker
An EU directive applying before the 31st of December 2020 already formed part of UK law, so did not need onshoring.
00:02:08
Speaker
Now, before the transition period concluded, on the 24th of December, the EU and UK agreed on the terms of the Trade and Cooperation Agreement, or TCA.
00:02:21
Speaker
Although this agreement was regarded as a
00:02:24
Speaker
major political turning point, the TCA is primarily a trade agreement.
00:02:30
Speaker
It does not address financial services in any detail and provides no new arrangements for financial services to replace the existing EU passports.
00:02:41
Speaker
But to this end, the TCA included a commitment to agree a memorandum of understanding between the EU and the UK by March 2021.
Regulatory Dialogues and Market Status
00:02:51
Speaker
that should establish a framework for structured regulatory cooperation of financial services.
00:02:58
Speaker
And following on from further EU-UK discussions, the UK government announced on 26th of March this year that technical discussions on the text of the Memorandum of Understanding had concluded.
00:03:10
Speaker
It added that the MOU once signed would establish the joint UK-EU Financial Regulatory Forum.
00:03:19
Speaker
serve as a platform to facilitate dialogue on financial services issues.
00:03:25
Speaker
Now, the draft MOU has not yet been publicly issued, and there's no indication so far of the EU granting any general access by UK firms to EU markets.
00:03:37
Speaker
So, accordingly, for the time being, market participants are really limited to using this information that has been provided so far by regulators in both the EU and UK.
00:03:48
Speaker
And it is still not clear what the path towards any long-term equivalent in financial services really looks like at the moment.
00:03:58
Speaker
Thanks, Jennifer.
00:03:59
Speaker
I understand, however, that there are some permissions that the European Union has granted temporarily to the United Kingdom.
00:04:08
Speaker
Yes, Henry, there certainly are.
00:04:10
Speaker
There are certain time-limited provisions that the EU has adopted to mitigate the impact of the end of the Brexit transition period.
00:04:19
Speaker
And for the most part, these provisions are still very much in effect.
00:04:24
Speaker
For example, the EU has recognized any authorized UK-based CSD, effectively Euroclear UK and Euroclear Ireland, until 30th of June 2021.
00:04:36
Speaker
Irish security settlements already moved from Euriclare, Ireland to Euriclare Bank earlier this year on the 15th of March.
00:04:44
Speaker
And UK-based authorized central counterparties, or CCPs, are recognized by the EU until 30th of June, 2022.
00:04:53
Speaker
Also, in February, the EU Commission issued a draft decision paving the way for data transfers between the EU and UK,
00:05:02
Speaker
after the current temporary adequacy arrangement expires on the 30th of June.
00:05:08
Speaker
Now, approval by representatives from various EU member states are still needed to finalize that decision.
00:05:16
Speaker
However, aside from these few time-limited provisions and the adequacy data decision on transfers, as I've just mentioned now, the EU has not granted equivalence for UK financial services.
00:05:30
Speaker
But Henry, I believe you've been looking at the impact of all of this on the distribution of funds from the UK to the EU.
00:05:38
Speaker
What's the current state of that moment?
00:05:42
Speaker
Oh, yes, Jan, I have.
00:05:44
Speaker
It's worth noting that a limited range of permissions by the European Union to the UK has already had wide-ranging effects for investment funds.
00:05:53
Speaker
In particular, EU passporting rights for financial services are no longer available for UK firms, meaning that, first, UK alternative investment fund managers can no longer market UK APES under the marketing passport.
00:06:07
Speaker
Second, UK alternative investment fund managers can no longer manage European Economic Area APEs.
00:06:14
Speaker
And thirdly, UK USIPs are now treated in the European Economic Area as non-EEA funds.
00:06:22
Speaker
So driven by these limitations post Brexit, the UK authorities and industry are currently assessing how to increase the attractiveness and competitiveness of its UK investment funds regime, recognizing the requirements of cross-border marketing and acceptable tax treatment.
Brexit Impact on Financial Services
00:06:39
Speaker
To this end, there's been a UK funds call for input consultation on issues across both tax and regulation, which closed on the 20th of April 2021.
00:06:50
Speaker
and there's a UK long-term assets fund consultation closing on the 25th of June this year.
00:06:57
Speaker
In addition, to help UK firms adapt to their new requirements, the Treasury, the UK Treasury, gave UK financial regulators the power to make transitional provisions to financial services legislation for a temporary period.
00:07:11
Speaker
Temporary transitional power, TTP, applies on a broad basis until 31st of March, 2022.
00:07:19
Speaker
During this limited period, firms can continue to comply with their pre-existing requirements while preparing for full compliance with the onshore United Kingdom regime, except for some regulations including parts of MIFID II, EMIR Securities Financing Transactions Regulation and Market Abuse Regulation, where compliance had to be immediate.
00:07:43
Speaker
Jen, you've got more on what the UK is allowing the European Union firms to do, I understand.
00:07:52
Speaker
temporary provisions for EU firms are still in effect.
00:07:57
Speaker
These are the UK's temporary permissions regime, the TPR, and temporary marketing permissions regime, the TNPR, which effectively allow EEA-based firms and funds that were passporting into the UK at the end of the transition period to continue operating in the UK for up to three years until the 31st of December, 2023.
00:08:21
Speaker
But firms had to apply before the end of the transition period.
00:08:25
Speaker
So during this time-limited period, it's expected that EA firms will seek full authorization in the UK and funds will need to, at a minimum, notify the FCA under the national private placement regime.
00:08:39
Speaker
I think it's also important to keep in mind that the UK regulatory landscape post the temporary permissions regime is still very much unknown.
00:08:49
Speaker
the UK continues to work through its pipeline of EU regulations.
00:08:53
Speaker
And as you may recall during June last year, the UK Treasury announced areas where the UK planned not necessarily to follow the EU rules and therefore divergence may occur in certain areas.
00:09:06
Speaker
For example, areas such as the CSDR settlement discipline regime, ESG disclosures, areas of solvency 2, digital and PRIPS.
00:09:17
Speaker
UK proposals in these areas are being developed by UK authorities in discussions with market infrastructures and institutions.
00:09:26
Speaker
However, while there would be some differences in the UK approach, these overall objectives are so far expected to be broadly the same.
00:09:34
Speaker
Well, thanks, Jennifer.
00:09:37
Speaker
Clearly, there's a lot to take in on this complex subject, and it evolves week by week.
00:09:42
Speaker
Everybody needs to watch developments on both sides of the channel on Morsh.
00:09:47
Speaker
We are publishing a paper on the post-Brexit progress on our website.
00:09:52
Speaker
As always, if clients do have questions, please do follow up with your client services manager.
00:09:58
Speaker
Jennifer, for now, thank you very much.
00:10:00
Speaker
And Gabriella, back to you.
00:10:02
Speaker
Thanks so much, Jennifer and Henry.
00:10:04
Speaker
This was quite enlightening also for me.
00:10:07
Speaker
We hope that you enjoyed this overview in the wake of the UK's departure from the
Conclusion and Further Information
00:10:12
Speaker
EU.
00:10:12
Speaker
Stay tuned for more from our podcasts, especially on CSDR and IBOR, as we explore more trends in the coming months.
00:10:21
Speaker
Thank you for listening today.
00:10:22
Speaker
This has been HSBC Global Viewpoint, Banking and Markets.
00:10:27
Speaker
For more information about anything you've heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.