Brexit will mean that politics will take precedent over principal, when setting policy in Europe, warned Kay Swinburne MEP, speaking at the Fixed Income Leaders’ Summit in Amsterdam.
“We need to consider the changes that will take place in the European Union (EU) and to the EU’s institutions. The European Parliaments elections are a good starting point,” she said.
In May 2019 the EU elections will likely trigger a new and very different parliament with a greater emphasis on fringe political parties. In the current parliament, these groups typically vote against legislation regardless of its content.
“In the new parliament this type of tactic could return with numbers that make a difference,” she said.
If this were to continue into the new parliament, Swinburne said one of two scenarios could emerge. Either they could block the passage of all legislation reducing the overall legislative output of the EU, or they could coordinate their activities.
Although they have not in the past Swinburne warned, “They could manage to deliver very radical agendas, across all legislation, not just those [in finance].”
The change in staff of EU institutions will also likely impact the direction of EC legislation, while there is also huge potential for change within individual EU member states, Swinburne said. The Italian budget and the new leadership within Germany will have a direct impact in the directions of financial legislation.
This will mean that a MiFID II review will be written off for at least the first six months of the new European parliament, with topics like taxation taking uptime in the agenda. However the fundamental work of MiFID II will be affected.
“I don’t know how many of you have heard of the ‘Investment Firms Review’, but it is already reclassifying what we understand to be an investment firms under MiFID II,” she said. “Fundamental changes are already taking place to the legislation.”
The reason this type of work is taking place behind closed doors right now is directly motivated by Brexit, which she said is the single biggest driver for ‘MiFID III’ type changes. The opinion that the UK would move away from existing European rules was quite wrong, she argued.
“When you think about the effects of Brexit and what impact it could have on MiFID, it is the EU 27 which will likely move away in a piecemeal fashion from MiFID II than the UK would ever think of,” Swinburne said.
Most relevant to the fixed income markets would be changes where the UK had most heavily influenced MiFID II, she further asserted. The UK was also always an advocate for a more limited set of instruments asset to be subject to pre-trade and post trade transparency rules in the fixed income markets and an advocate for fair competition between firms within Europe’s capital markets.
“The UK insisted there were rules around non-discriminatory access to clearing,” she said. “Without the UK applying competitive pressure, I would not be at all surprised if the current exemption to this rule is made permanent.”
