17th Sep 2019


Brexit row delays financial products transparency review

  • Should data about financial products from the UK be included in an EU review, when the UK is about to leave? (Photo: Gordon Williams)

The uncertainty caused by Brexit has led to disagreement between the European Commission and its Paris-based financial regulatory body, about the usefulness of carrying out a review of financial products transparency.

The European Securities and Markets Authority (ESMA) has proposed to wait until the UK has left the EU, but the commission has told the authority it should carry out the review "as a matter of urgency", letters published this week reveal.

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  • ESMA chairman Steven Maijoor (r), in 2017 with EU financial markets commissioner Valdis Dombrovskis. (Photo: European Commission)

ESMA was put in place in 2011 as an EU financial markets watchdog in response to the financial crisis of 2007 and 2008.

One of the post-crisis measures was to require more transparency in the financial system.

A technical EU regulation adopted in 2016 set thresholds determining the level of transparency for certain financial products.

It also gave ESMA the tasks to carry out annual reviews of how the transparency requirements for bonds and derivatives were working out, and whether the thresholds needed to be adjusted.

ESMA was supposed to have submitted its review by 30 July.

Instead, its chairman, Steven Maijoor, wrote to the commission saying that the review should be postponed because of the UK's departure from the EU, or Brexit.

Maijoor argued, in a letter dated 17 June, that "the remaining uncertainties regarding the timing and conditions of Brexit do not allow for an adequate assessment at this point in time".

Brexit originally was supposed to take place on 29 March, but was then postponed two times. The current planned exit date is 31 October.

The UK's capital, London, is such an important financial hub that including it in the review or not would greatly affect the outcome, Maijoor wrote.

The outcome of the review will inform whether transparency rules for certain financial products must be tightened.

"Including or excluding UK data from the assessment would have a fundamental impact on the results and any decision whether to include UK data would depend on whether the UK is still a member of the [European] Union at the time any legislative change would take effect," said Maijoor.

"Moreover, Brexit will in all likelihood affect liquidity in bond and derivatives markets and the value of the assessment will be limited when conducted before these effects have materialized."

"Therefore, ESMA does not consider that this is a suitable time for performing the assessment and for potentially tightening the transparency rules in RTS 2 [the regulation in question]," Maijoor concluded.


The commission disagreed, however.

It sent ESMA a letter dated 1 August, saying that the review was all the more necessary - because of Brexit.

"Contingency planning for a withdrawal of the UK from the MiFID II framework requires that ESMA undertake the review of the transparency requirements for non-equity instruments as a matter of urgency," wrote Olivier Guersent, the highest-ranking civil servant at the commission's financial department.

MiFID is short for Markets in Financial Instruments Directive. It is one of the key pieces of EU legislation adopted to strengthen the framework for the regulation of markets in financial instruments.

Guersent wrote that ESMA "should provide the European commission with trajectories" that would allow the commission to compare scenarios with and without the UK.

"This data is necessary in order to form a view on whether the timelines for the phase-in provisions in RTS 2 would significantly differ from those initially anticipated," said the commission letter.

ESMA did not want to comment, but it can be expected that it needs some time to decide on its next move.

However, the clock is ticking, with only 83 days to go until Brexit.

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