Steps towards Capital Markets Union (CMU) in the EU should go ahead regardless of Brexit, according to the International Capital Market Association (ICMA).
In its 10 March response to the European Commission’s mid-term review of the CMU project, ICMA asserts that there is a strong case for the plans to proceed among the remaining 27 EU states once the UK departs.
This is on two grounds:
“Even so,” ICMA notes, “the proposed withdrawal of the UK from the EU represents a significant risk to the potential benefits that CMU can bring to Europe as a whole, given London’s role as an international financial centre.”
The organisation quoted an estimate from management consultancy Oliver Wyman, suggesting that more than 75% of the EU’s capital market business is conducted through the UK.
On that basis, ICMA writes, “London is expected to continue to have an important international role – even if some of London’s business moves to different financial centres in the EU27 in response to Brexit.”
In terms of how the impacts on CMU from the UK’s withdrawal could be minimised, ICMA points out: “EU law will continue to apply in the UK until Brexit day – including new EU legislation [passed] between now and Brexit day.”
ICMA further explains: “The UK government is due this spring to introduce a Great Repeal Bill in parliament, which is intended to ensure that, on Brexit day, all existing EU law will become UK law.
“EU directives are already transposed into UK law. But EU regulations (and various technical standards, which underpin the operation of both EU regulations and EU directives) currently apply directly in the UK.”
As such, those regulations will “cease to apply from Brexit day – unless the Great Repeal Act provides that they should continue to apply in the UK after Brexit. The Great Repeal Bill is not just a ‘copy and paste’ exercise, and there is also a risk that it will be amended during the course of its passage through parliament.
“But the UK government’s intention is that, on Brexit day, capital market regulation in the UK and in the EU27 should effectively be the same.”
While that should provide a measure of reassurance for the remaining states, ICMA stresses: “The EU27 will also need to reassess how well its financial legislation will function post-Brexit without the UK.”
ICMA adds: “The UK government has proposed that the UK should leave the single market when it leaves the EU, but plans to negotiate access to the single market as a third country.
“It remains to be seen whether the UK will remain equivalent with regulation in the EU27 and whether appropriate regulatory and supervisory arrangements can be put in place between the Financial Conduct Authority and the European Securities and Markets Authority.”
On that note, it warns: “There are some technical difficulties relating to equivalence which need to be overcome during the bilateral negotiations between the UK and the EU27… But if negotiations between the UK and EU27 break down, there is a real risk that UK and EU27 regulation and supervisory convergence will start to diverge after Brexit.”
To find out what ICMA has to say on other, key aspects of CMU, read its full response to the Commission here.