Brexit: the elephant in the room
13 Jun 2018
Hot topics at the AFME conference included technology, Brexit impact on investors and custodians, and the regulatory landscape in a post-Brexit world
Image: Shutterstock
Delegates gathered at this year’s Association for Financial Markets in Europe (AFME) London conference. During the event, panellists discussed topics including the impact of Brexit on investors and custodians and the regulatory landscape in a post-Brexit world.
Discussions in the afternoon drew upon gamechangers in the post-trade market, as well as ways for post-trade services to transform and evolve whilst looking to the future.
Opening the conference, the chair warned that Brexit would affect all members in some way, and highlighted the degree of uncertainty that surrounds Brexit. The chair advised firms to make early planning assumptions, and asked delegates whether or not they thought it would be a hard or a soft Brexit.
As well as this, the chair speculated how the industry would manage to renegotiate contract memberships in a condensed period at the same time everyone else is trying to do something similar but with a slightly different flavour. “We plan for the worst and hope for the best”, the chair remarked.
In one panel session, panellists discussed the affects of Brexit on investors and custodians. They discussed Brexit best- and worst-case scenarios for the buy-side and for custodians, how the effects of fragmentation caused by Brexit could be mitigated, and the extent to which European markets may lose ground to Asian and American markets.
One panellist said: “The problem is that so little is known about the transition. At the moment custodians are effectively dealing with client needs, it has been, in a way, relatively easy.”
In terms of Brexit as a priority, one panellist indicated that it wasn’t on top of their list. They said: “We struggle with whether we should put Brexit on the agenda and we really haven’t as we have other priorities, there just isn’t the meat to sink your teeth into in Brexit really. The key thing is that we have close communication with our clients.”
Another panellist said: “We had to consider a worse case scenario—loss of the ability to sell UCITS funds. The merger happened, and for a number of reasons we built up an existing base in Luxembourg. And in Ireland, where we had a presence already, we decided to make that second Markets in Financial Instruments Directive (MiFID II) entity. Those steps started to be put into place quite early on, and doing anything like that is quite a big undertaking.”
The panellist added: “If you were a purely domestic player then you might have made different decisions. It really depends on your business, what your size is and how long it is going to take.”
“We don’t know what the in-landscape is going to look like and there are lots of other things to consider.”
Closing the panel on a positive note, the moderator asked panellists to name one opportunity that the Brexit process may bring to them.
For one panellist, an increase in their UK office’s staff numbers was seen as an opportunity.
Meanwhile, another suggested that there is opportunity to establish presences in different jurisdictions. They added that the “UK will have its own regime and so an aspect of making it attractive and safe for investors, might be a point that has a higher standard in future”.
In the following panel, speakers discussed themes regarding the current regulatory landscape, CMU and European post-trade (EPT) in a post-Brexit EU. They were asked what has changed in their priorities, and what their perspective on the situation is.
Taking a positive approach, one panellist said: “Today we are in a much better place than we were seven or eight years ago. We have structure, a level playing field, and we have a tool to work on the connectivity. The situation is much better than we think.”
Taking a slightly less optimistic approach, another speaker said: “I think we have made a bit of progress but the problem is Brexit. What impact is Brexit going to have in the future? Tensions can already be seen within the regulatory community. There are a lot of unknowns at this stage.”
One speaker advised: “We need to be innovative in order to keep up with this race. We are still waiting for the Google of financial services. The first impact will be the transparency, and moving in the direction of further consolidation, we are trying to work on our range of services so that we are attractive and ready.”
Meanwhile, in the afternoon, some 52 percent of the audience at the conference said that technology is the main gamechanger in the industry. A further 42 percent thought that the main gamechanger is actually regulation, while 6 percent surmised that politics and monetary issues are the main game changers.
One panellist said: “Sometimes international politics is as good as a Netflix drama. In Brexit discussions, it seems that we take two steps forward then quite a few back. International politics is something overshadowing everything that we do.”
Another panellist commented: “Global markets have been decoupled from global turmoil, so this is certainly challenging a time for us [the industry]. Close to the 10th anniversary of the worst financial crisis since the Great Depression, the financial landscape have been changed through policy regulation. Nationalism gives rise to protectionism. It would be a disaster for us all to go in the wrong direction.”
The shift of focus turned to technology, with one speaker pointing out that the industry spent about $1 billion on implementing Target2-Securities (T2S). T2S was put into place in January 2017, when it was virtually live.
In a separate poll, the moderator asked the audience when they predicted the industry would see the first scale blockchain application in the post-trade area: 2020, 2025, or 2030.
Some 59 percent said 2025, while 29 percent said 2030, a further 13 percent said 2020.
Commenting on this, one speaker said: “The timeline keeps getting longer. These ideas that we might have as an industry make sense to us, one system and one platform. But, it has never happened, because the industry could not come together.”
Another speaker said: “Maybe it is 2030 rather than 2025 because to make this work you need global corporation, global standards, and you need to put a lot of money into it.”
The panel moved back to discussing politics, saying that in regards to Brexit, the industry could be about to enter into either a wild thunderstorm or a period where the clouds will clear.
“There is not a lot of information on any one of those areas to guide us. The regulators are setting the rulebook, they need to make sure that ground is in good shape, we have to confer with the team’s market participants to complete their needs. We need complete optimal conditions to meet their ground but we can’t control the weather.”
To conclude the conference, the chair reverted the known knowns and known unknowns in his closing remarks. Brexit, obviously, is a known unknown, whereas the EPTF report is the known known, the chair said. Understandably, sizeable efforts and resources are allocated to Brexit, the elephant in the room, the chair continued.
He added: “Yet, I would argue that adequate resources should be devoted to increase the efficiency and safety in a cross-race space through harmonisation and standardisation for two reasons: First, to reduce the still existing fragmentation in European capital market irrespective of Brexit. And second, I am convinced that this will facilitate and improve business cases for fintech solutions.”
Discussions in the afternoon drew upon gamechangers in the post-trade market, as well as ways for post-trade services to transform and evolve whilst looking to the future.
Opening the conference, the chair warned that Brexit would affect all members in some way, and highlighted the degree of uncertainty that surrounds Brexit. The chair advised firms to make early planning assumptions, and asked delegates whether or not they thought it would be a hard or a soft Brexit.
As well as this, the chair speculated how the industry would manage to renegotiate contract memberships in a condensed period at the same time everyone else is trying to do something similar but with a slightly different flavour. “We plan for the worst and hope for the best”, the chair remarked.
In one panel session, panellists discussed the affects of Brexit on investors and custodians. They discussed Brexit best- and worst-case scenarios for the buy-side and for custodians, how the effects of fragmentation caused by Brexit could be mitigated, and the extent to which European markets may lose ground to Asian and American markets.
One panellist said: “The problem is that so little is known about the transition. At the moment custodians are effectively dealing with client needs, it has been, in a way, relatively easy.”
In terms of Brexit as a priority, one panellist indicated that it wasn’t on top of their list. They said: “We struggle with whether we should put Brexit on the agenda and we really haven’t as we have other priorities, there just isn’t the meat to sink your teeth into in Brexit really. The key thing is that we have close communication with our clients.”
Another panellist said: “We had to consider a worse case scenario—loss of the ability to sell UCITS funds. The merger happened, and for a number of reasons we built up an existing base in Luxembourg. And in Ireland, where we had a presence already, we decided to make that second Markets in Financial Instruments Directive (MiFID II) entity. Those steps started to be put into place quite early on, and doing anything like that is quite a big undertaking.”
The panellist added: “If you were a purely domestic player then you might have made different decisions. It really depends on your business, what your size is and how long it is going to take.”
“We don’t know what the in-landscape is going to look like and there are lots of other things to consider.”
Closing the panel on a positive note, the moderator asked panellists to name one opportunity that the Brexit process may bring to them.
For one panellist, an increase in their UK office’s staff numbers was seen as an opportunity.
Meanwhile, another suggested that there is opportunity to establish presences in different jurisdictions. They added that the “UK will have its own regime and so an aspect of making it attractive and safe for investors, might be a point that has a higher standard in future”.
In the following panel, speakers discussed themes regarding the current regulatory landscape, CMU and European post-trade (EPT) in a post-Brexit EU. They were asked what has changed in their priorities, and what their perspective on the situation is.
Taking a positive approach, one panellist said: “Today we are in a much better place than we were seven or eight years ago. We have structure, a level playing field, and we have a tool to work on the connectivity. The situation is much better than we think.”
Taking a slightly less optimistic approach, another speaker said: “I think we have made a bit of progress but the problem is Brexit. What impact is Brexit going to have in the future? Tensions can already be seen within the regulatory community. There are a lot of unknowns at this stage.”
One speaker advised: “We need to be innovative in order to keep up with this race. We are still waiting for the Google of financial services. The first impact will be the transparency, and moving in the direction of further consolidation, we are trying to work on our range of services so that we are attractive and ready.”
Meanwhile, in the afternoon, some 52 percent of the audience at the conference said that technology is the main gamechanger in the industry. A further 42 percent thought that the main gamechanger is actually regulation, while 6 percent surmised that politics and monetary issues are the main game changers.
One panellist said: “Sometimes international politics is as good as a Netflix drama. In Brexit discussions, it seems that we take two steps forward then quite a few back. International politics is something overshadowing everything that we do.”
Another panellist commented: “Global markets have been decoupled from global turmoil, so this is certainly challenging a time for us [the industry]. Close to the 10th anniversary of the worst financial crisis since the Great Depression, the financial landscape have been changed through policy regulation. Nationalism gives rise to protectionism. It would be a disaster for us all to go in the wrong direction.”
The shift of focus turned to technology, with one speaker pointing out that the industry spent about $1 billion on implementing Target2-Securities (T2S). T2S was put into place in January 2017, when it was virtually live.
In a separate poll, the moderator asked the audience when they predicted the industry would see the first scale blockchain application in the post-trade area: 2020, 2025, or 2030.
Some 59 percent said 2025, while 29 percent said 2030, a further 13 percent said 2020.
Commenting on this, one speaker said: “The timeline keeps getting longer. These ideas that we might have as an industry make sense to us, one system and one platform. But, it has never happened, because the industry could not come together.”
Another speaker said: “Maybe it is 2030 rather than 2025 because to make this work you need global corporation, global standards, and you need to put a lot of money into it.”
The panel moved back to discussing politics, saying that in regards to Brexit, the industry could be about to enter into either a wild thunderstorm or a period where the clouds will clear.
“There is not a lot of information on any one of those areas to guide us. The regulators are setting the rulebook, they need to make sure that ground is in good shape, we have to confer with the team’s market participants to complete their needs. We need complete optimal conditions to meet their ground but we can’t control the weather.”
To conclude the conference, the chair reverted the known knowns and known unknowns in his closing remarks. Brexit, obviously, is a known unknown, whereas the EPTF report is the known known, the chair said. Understandably, sizeable efforts and resources are allocated to Brexit, the elephant in the room, the chair continued.
He added: “Yet, I would argue that adequate resources should be devoted to increase the efficiency and safety in a cross-race space through harmonisation and standardisation for two reasons: First, to reduce the still existing fragmentation in European capital market irrespective of Brexit. And second, I am convinced that this will facilitate and improve business cases for fintech solutions.”
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