6/29/16 - Brexit: Regulatory Implications
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6/29/16 - Brexit: Regulatory Implications

Brexit presents global financial institutions with potentially the greatest regulatory challenges since the financial crisis.

The United Kingdom is just beginning a complex process in which both the timetable and outcome are uncertain. The future functioning of the European Union itself may be fundamentally affected by this process. In these circumstances, firms will consider strategic decisions with advisers who truly understand the unfolding dynamic and can provide wise counsel quickly.

Promontory has a proven track record in advising clients on regulatory uncertainty and related challenges in dynamic situations. Working with clients, we draw on a unique network of experienced professionals, many of whom are former senior regulators. Clients have been and will continue to consider contingencies regarding the nature and structure of their operations in the U.K. and the EU and how these might be affected.

This complex assessment requires firms to consider a host of issues. While the coming months may provide clarity in some areas, other areas will require decisions whilst the regulatory future is still uncertain. In addition to firm-specific objectives and constraints, firms must consider:

  • Access to payment networks and central bank liquidity facilities
  • Licensing requirements and passporting of financial services
  • Passporting for the distribution of investment products, such as UCITS
  • Trading and derivatives booking rules
  • Ring-fencing and similar considerations for capital and liquidity movements, dividends, limits on large exposures, and subsidiary governance
  • Resolution planning
  • Counterparty relationships
  • Corporate structure and taxation
  • Privacy and data protection
  • Conduct regulation
  • Employment law
  • Remuneration and taxation (including incentive compensation)
  • Anti-money-laundering requirements and risks
  • Impact on other EU and non-EU operations
  • Incremental personnel and infrastructure needs, including outsourcing
  • Transition process, obstacles, and costs
  • Priorities, approach, and culture of relevant local and regional regulators

In addition, the Brexit vote is likely to have both near- and longer-term impact on legislation and rules in the U.K. as well as the EU.

In the current environment it is possible that the influence exercised by the U.K. in the EU legislative and rulemaking process will progressively diminish — whatever the final outcome of the negotiations regarding the U.K.’s relationship with the EU following the Brexit vote. Among the many consequences, this could mean:

  • In banking, the European Banking Authority will relocate to another EU member state; the European Central Bank will have greater influence in the development of the EBA’s single rulebook
  • In securities, members of the European Securities and Markets Authority will be less inclined to compromise with the Financial Conduct Authority on finalizing the Markets in Financial Instruments Directive (MiFID II) implementing measures and, particularly, future level 3 guidelines and recommendations. ESMA may get further powers of direct supervision of EU-wide business and firms
  • A different dynamic in negotiations on current legislative proposals, such as the financial transaction tax, the separation of banking activities, and the European Commission’s capital markets union
  • Changes to the regulatory agenda of the FCA and the Prudential Regulation Authority in the U.K.

Promontory Can Help

What matters as much as the rules written on the page is the way regulators are thinking and what they intend to accomplish in applying the rules. These off-the-page considerations are always the most important aspect of financial regulation and supervision, but never more so than in this uncertain and highly dynamic context.

Promontory’s experts are former senior regulators and central bankers in virtually all the relevant countries, including former U.S. regulators, U.K. and EU regulators, and members of the Basel Committee on Banking Supervision, International Organization of Securities Commissions, and Financial Stability Board. We offer deep insight into Brexit’s likely impact on financial regulation and supervision.

Consider making Promontory your regulatory partner in navigating Brexit and its consequences.

Contact Us

To discuss how Promontory can assist you with your Brexit needs, please contact Promontory’s Brexit team (brexit@promontory.com; (U.K.) +44 207 997 3467; (U.S.) +1 202 384 1009) or:

Carlo Comporti
Managing Director, Paris
ccomporti@promontory.com
+33 1 44 79 17 25

Elizabeth McCaul
Partner-in-Charge, New York Office
emccaul@promontory.com
+1 212 365 6581

Henry Raine
Managing Director, London
hraine@promontory.com
+44 207 997 3467

Barak J. Sanford
Managing Director, Washington, D.C.
bsanford@promontory.com
+1 202 3841020

Sam Tymms
Managing Director, London
stymms@promontory.com
+44 207 997 3405