What would ‘Brexit’ mean for Europe’s capital markets? Clifford Chance report analyses the legal and regulatory challenges
AFME has today published a report, commissioned from Clifford Chance, which analyses the potential impact of a UK exit from the EU on Europe’s capital markets.
The report, entitled “The UK Referendum: Challenges for Europe’s Capital Markets”, was written by Clifford Chance and assesses the legal and regulatory impacts on European capital markets in the event of the UK leaving the EU.
Simon Lewis, Chief Executive of AFME, said: “Given our members’ interest, AFME commissioned this report as part of our fact-based approach to explaining the importance of Europe’s integrated capital markets. AFME believes that vigorous, integrated capital markets are vital for long-term growth in Europe. We hope that this report provides a solid platform for informed discussion in the run-up to the referendum on the regulatory and legal implications of the UK leaving the EU.”
Chris Bates, Partner at Clifford Chance, said: “The EU passports for banks, investment firms and products have shaped the way in which capital markets services are provided in the EU. Our report looks at the alternative treaty frameworks for a UK-EU relationship in capital market services and the extent to which existing ‘third country’ regimes in EU legislation might mitigate the impact of the UK leaving the EU on crossborder business. However, there is likely to be a long period of uncertainty after a vote to leave as to whether these regimes will be available, which will affect market participants’ business planning.”
Among its main conclusions, the report finds that, in the event of a UK exit from the EU:
- Global banks based in the UK would no longer have rights as EU firms to be able to ‘passport’ their services to the rest of the EU under existing legislation, such as MiFID and the Capital Requirements Directive (CRD). This ‘passport’ is key to the UK’s appeal for many non-EU financial institutions. By basing part of their operations in one Member State these institutions are then able to offer their services throughout the EU with no need for additional local authorisations. Unless the UK remains in the EEA, any replacement trade agreement would therefore have the potential to restrict crossborder trading.
- In the period post-exit, the capital markets industry would face a time-consuming and complex process, and real operational challenges for both UK banks wishing to trade in the EU, as well as the many EU companies and investors which rely on continued access to the UK investment banking industry and financial services;
- Banks and investment firms are likely to be affected by new restrictions on cross-border business. However, if it is activated, the MiFIR “third country entity passport” could be an important mitigant allowing wholesale cross-border investment services to be provided in the EU;
- Trading venues, central counterparties and central securities depositories and their users could also be affected by new restrictions unless these infrastuctures are recognised as equivalent in the EU and the UK;
- Even if it is possible to mitigate much of the immediate impact of any UK exit, changes to law or regulation over time in the UK and the EU could adversely affect the existing harmonised legal framework.
Source: AFME
