In his keynote address at the World Federation of Exchanges Annual Meeting in Athens on 3 October 2018, Steven Maijoor, Chair of the European Supervisory and Markets Authority (ESMA), indicated that ESMA has coordinated, with the EU27 national competent authorities (NCAs), memoranda of understanding/co-operation arrangements between NCAs (MOUs) for use in a "hard Brexit" scenario.

This is a timely reassurance for the funds industry as a key eligibility requirement for delegation of asset management to third country asset managers under the UCITS, AIFMD and MiFID Directives is that an MOU be in place between the NCA of the third country and that of the relevant member state. Mr Maijoor stated "Taking the wider negotiations between the EU and UK into account, we plan to start negotiations with the UK FCA with the objective to have these MOUs in place sufficiently on time before the end of March 2019".

These MOUs are necessary to allow exchange of information and effective supervision and enforcement of EU legislation generally. Similar remarks have also been made by Mr Maijoor's colleagues, including Ms Verena Ross, Executive Director of ESMA at a presentation to the Institute of International and European Affairs in Dublin on 5 October. In his speech, Mr Maijoor also referred to the need for a comprehensive and harmonised EU regime for third country trading venues. MiFID II provides NCAs with substantial discretion and very diverse regimes are currently in place. Mr Maijoor argued that a harmonised third country regime would contribute to a level playing field between EU and non-EU trading venues and mitigate risk in relation to orderly markets, investment protection and ultimately stability. Such regime should:

  • cover all types of trading venues;
  • cover, in one equivalence decision, all purposes for which the trading venues would need to be recognised (e.g. placing of trading screen, post-trade transparency and trading obligations);
  • ensure that third country trading venues accessing the EU comply with requirements that are equivalent to those of EU trading venues; and •
  • establish one point of entrance to the EU with effective supervisory tools.

It should also be noted that on 26 September, ESMA sent a letter to the European Commission expressing concerns relating to third country firms providing investment services and performing investment activities within the EU, not just in the context of Brexit but on a more general level.

Mr Maijoor was also supportive of the proposal that action be taken to ensure that European clearing members have access to UK based clearing counterparties (CCPs) postBrexit. Such continued access is in line with the so-called "EMIR 2.2" proposal which permits systemically important CCPs (Tier 1 CCPs) from third countries to provide services in the EU.