On 4 June 2019, the European Securities and Markets Authority (ESMA) published a speech from its Chair, Steven Maijoor, on international cooperation in financial regulation and supervision. Key points to note in the speech include:
- as of October 2018, the EU had granted equivalence to thirty-five jurisdictions across eight securities and accounting files;
- ESMA’s view on the application of the share trading obligation (STO) has changed to further reduce potential market disruption by fully excluding shares with GB ISINs. This change would avoids conflicting obligations in case the UK implements its own STO in a similar way;
- the STO will fragment markets, however, this is inherently related to the UK’s decision to leave the EU and the risk of a no-deal Brexit;
- under the Withdrawal Agreement and the related Political Declaration, equivalence is envisaged, and in this scenario ESMA would continue to have open markets between EU and UK venues for the trading of equity;
- the UK has clarified that it plans to only disclose the application of the UK STO once it is clear there is a no-deal Brexit. Practically, this may mean that clarity will only be provided a few days, or perhaps even a few hours, ahead of a no deal situation. To allow market participants to properly prepare for the risk of a no-deal, ESMA hopes that this timing is reconsidered;
- data is currently exchanged daily between all EU competent authorities, including the UK. This data exchange is governed by extensive and detailed regulatory requirements. As trading will continue on a cross border basis with the UK, it is essential that ESMA considers how we can continue to exchange data with the FCA;
- ESMA has pointed out ahead of Brexit that full reliance on third country rules and supervision was not appropriate for systemically relevant central counterparties (CCPs);
- the changing EU approach towards cross-border regulation and supervision may result in more granular assessments. For example, while EMIR 2.2 will have limited impact on Tier 1 CCPs, CCPs falling into the Tier 2 category will need to comply with the detailed EMIR requirements. However, there will also be the opportunity to rely on the requirements of the home country of the Tier 2 CCP; and
- the assessment of this opportunity for home country reliance will be done at CCP-level and on a requirement-by-requirement basis.