Brexit - Contigency measures and communication to clients

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EU commission Brexit contingency measures and communication to clients

21 December 2018

Regulatory News Alert

On 19 December, 100 days before Brexit takes effect, the EU commission released a short but key document evidencing the principal areas where contingency measures should be taken to prevent systemic risks stemming from an unordered Brexit. As expected the areas cover essentially civil and social rights, transports (flights) and one area of financial regulation the derivatives. The same day ESMA released a note on the necessary communication to clients.

Regarding financial regulations, the EU Commission contingency measures spell out clearly that they are by definition of a transitory nature and will be triggered only in case no other option is available come 29 March 2019 as cutoff date. It is worthwhile noting that the exercise of identifying these measures is the fruit of a joint analysis from all EU institutions to safeguard stability. This will concern:

  • A temporary and conditional equivalence decision for 12 months to avoid disruption in central clearing of derivatives. European Securities and Markets Authority (ESMA) will hence recognizes temporarily UK based central counterparties allowing them temporarily to continue providing services in the Union. Noting that vast amount of collateral and margins have not yet moved.
  • A similar temporary and conditional equivalence will apply to CSD – Central Securities Depositories – for 24 months in order to avoid disruption in services provided by UK central securities depositories. This will allow operators that currently have no immediately available alternative some leeway to relocate and fulfil their obligations under EU law.
  • Two delegated regulations to facilitate novation of certain OTC derivatives contracts to another counterparty at no or very low cost if they predate 29 March 2019.

The EU commission reminds users of such infrastructures that they have to prepare for the case where there current set will no longer meet EU regulation requirements.

Next steps

It is positive to note that contingency measures have been taken for this critical area, but leave many other doors open, notably on the notion of equivalence in UCITS, AIFMD, MIFID II and others. As reminder, unless measures are taken the notion of passporting will disappear and with it many procedures will have to be reviewed.

In that vein, ESMA has prepared as well a communication plan towards clients in the following areas, all coming from regulatory requirements:

  • The impact of departure might have on the circumstances of those clients
  • The actions the firm is taking (contractual, legal and organizational)
  • Implications of any corporate restructuring on the clients
  • The impacts on contractual and statutory rights of clients including potential right of cancellation

Client communication should be simple, in plain language so as to help them understand the potential impact on their contractual relationship as well as their positions (financial, services and products).

How Deloitte can help

Deloitte can help you assess the areas at risks with its Brexit health check, help you define the most adequate strategy to implement these changes.

Deloitte can help you stay on top of regulatory news with its regulatory watch Kaleidoscope service.

Contacts

Simon Ramos
Partner – Brexit Coordinator
Tel : +352 45145 2702
siramos@deloitte.lu

Lou Kiesch
Partner – Regulatory Consulting Leader
Tel : +352 45145 2456
lkiesch@deloitte.lu

Pascal Martino
Partner – Banking Leader
Tel : +352 45145 2119
pamartino@deloitte.lu

Marco Lichtfous
Partner – Brexit Banking
Tel : +352 45145 4876
mlichtfous@deloitte.lu

Francesca Messini
Director – Brexit Banking
Tel : +352 45145 2791
fmessini@deloitte.lu

Julie Van Cleemput
Director – Strategy & Regulatory Consulting
Tel : +352 45145 2989
jvancleemput@deloitte.lu

Benoit Sauvage
Senior Manager – RegWatch, Strategy & Consulting
Tel : +352 45145 4220
bsauvage@deloitte.lu

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