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The Irrelevance of Brexit for the European Financial Market

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Abstract

Among participants in the global financial market, Brexit is commonly painted as an almost apocalypse-like scenario. The threat of a British exit from the European Union (EU) arguably involves a significant disruption to financial integration in Europe, which will threaten the pre-eminence of London as a global financial centre, and impose significant costs on all market participants. This paper takes a different position on the significance of Brexit for the European financial market. It argues that, in reality, the impact of Brexit for financial services will be minuscule, if not irrelevant. Such optimism is grounded in the economic stakes for both sides, the United Kingdom (UK) and the remaining EU countries (EU27), in retaining the benefits of access to the European Single Market for financial services. Given the joint economic interests, a likely outcome of the Brexit negotiations will be a solution that formally satisfies the 2016 referendum result, but in substance keeps Britain closely involved in the EU financial market. Alternatively, one should expect an agreement on the basis of regulatory equivalence. If an agreement is not achieved, private solutions by market actors are likely. The paper borrows from past examples in EU financial market integration that saw ingenious creativity at work in facilitating a desired outcome within the existing convoluted legal framework. These past experiences lead to the prediction of a similar approach being used for accommodating Brexit. The broader point is then that the EU financial services framework repeatedly sees a victory of politics or economics over the law—that is, formal legal problems or structures are brushed aside when political necessities or economic exigencies so require.

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Notes

  1. The letter is available at http://www.gov.uk/government/uploads/system/uploads/attachment_data/file/604079/Prime_Ministers_letter_to_European_Council_President_Donald_Tusk.pdf.

  2. For a comprehensive overview and discussion of the various options, see Armour (2016).

  3. Joe Watts, ‘Theresa May indicates “hard Brexit” and dismisses free movement deal to keep single market access’, The Telegraph (2 October 2016), available at http://www.independent.co.uk/news/uk/politics/theresa-may-hard-brexit-soft-article-free-movement-deal-single-market-access-a7341886.html.

  4. Gavin Finch, ‘Banks’ Brexit Future Hinges on Passporting Rights’, Bloomberg (20 October 2016), available at http://www.bloomberg.com/news/articles/2016-10-19/u-k-banks-brexit-hopes-boil-down-to-one-word-quicktake-q–a.

  5. See, for example, Case C-98/01 Commission v. UK [2003] ECR I-4641 (the BAA case) concerning a rule which limited the acquisition levels in shares. This was not discriminatory, but was held to deter foreign investment.

  6. Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II), [2014] OJ L173/349; Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012 (MiFIR), [2014] OJ L173/84. Both instruments apply from 3 January 2018.

  7. Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (CRDIV), [2013] OJ L176/338.

  8. Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No. 1093/2010, and repealing Directive 2007/64/EC (PSD II), [2015] OJ L337/35, applicable from 13 January 2018.

  9. Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC (2EMD), [2009] OJ L267/7.

  10. Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast) (IDD), [2016] OJ L26/19, applicable from 23 February 2018.

  11. Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (recast), [2009] OJ L302/32, as amended by Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014 amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions, [2014] OJ L257/186.

  12. Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010 (AIFMD), [2011] OJ L174/1.

  13. Dirk Schoenmaker, ‘Lost passports: a guide to the Brexit fallout for the City of London’, Bruegel (30 June 2016), http://bruegel.org/2016/06/lost-passports-a-guide-to-the-brexit-fallout-for-the-city-of-london/.

  14. See DLA Piper Client Alert, ‘No more passporting post-Brexit’, Financial Services Regulation Alert (27 July 2016), https://www.dlapiper.com/en/uk/insights/publications/2016/07/no-more-passporting-post-brexit/.

  15. David Allen Green, ‘Brexit: can and should the UK remain in the EEA?’, FT Online (2 August 2017), https://www.ft.com/content/16b50be8-161c-38d3-83b8-14b04faa9580. For an analysis of the various options, see European Parliament (2017).

  16. See Schroeter and Nemeczek (2016); Green, above n. 15.

  17. Jane Croft, ‘High Court throws out second legal challenge to UK’s exit’, Financial Times (4 February 2017), p 3.

  18. See Christian Oliver and Richard Milne, ‘Norway’s offshore drilling fight with EU a cautionary tale for UK’, FT Online (18 January 2016), https://www.ft.com/content/9ed984b0-bab0-11e5-b151-8e15c9a029fb; Jean Pisary-Ferry and others, ‘Europe after Brexit: A proposal for a continental partnership’ (25 August 2016), available at http://bruegel.org/2016/08/europe-after-brexit-a-proposal-for-a-continental-partnership/.

  19. Anca Gurzu, ‘Norway to Britain: Don’t leave, you’ll hate it’, Politico (15 June 2016), http://www.politico.eu/article/eu-referendum-look-before-you-leap-norways-pm-tells-brexiteers/.

  20. Norway currently contributes more than €800 m a year to the EU budget. See Norway Mission to the EU, ‘Norway’s financial contribution’ (last updated 10 August 2016), available at http://www.eu-norway.org/eu/Financial-contribution/#.WBtLMi0rJhE.

  21. EEA Agreement, Art. 28.

  22. EEA Agreement, Art. 112.

  23. Singing EFTA would be vital, as only EU or EFTA members may be part of EEA.

  24. Ole Ask, ‘Norge er skeptisk til å slippe britene inn i EFTA’, Aftenposten (9 August 2016), http://www.aftenposten.no/verden/Norge-er-skeptisk-til-a-slippe-britene-inn-i-EFTA-601643b.html; Patrick Wintour, ‘Norway may block UK return to European Free Trade Association’, The Guardian (9 August 2016), https://www.theguardian.com/world/2016/aug/09/norway-may-block-uk-return-to-european-free-trade-association. But see Raoul Ruparel, ‘Norway has little to lose from having the UK in EFTA’, Open Europe Blog (10 August 2016), available at http://openeurope.org.uk/today/blog/norway-has-little-to-lose-from-having-the-uk-in-efta/.

  25. Wintour ibid.

  26. See, for example, the Statement after an Informal meeting of the Heads of State or Government of 27 Member States, as well as the Presidents of the European Council and the European Commission at Brussels (15 December 2016), available via http://www.consilium.europa.eu/press-releases-pdf/2016/12/47244652443_en.pdf: ‘We reiterate that any agreement will have to be based on a balance of rights and obligations, and that access to the Single Market requires acceptance of all four freedoms’.

  27. European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directive 2013/36/EU as regards exempted entities, financial holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital conservation measures, COM(2016) 854 final (23 November 2016).

  28. See proposed CRD IV, Art. 21b.

  29. Huw Jones, ‘Foreign banks face new EU set-up to allow more scrutiny’, Reuters (4 September 2017), https://www.reuters.com/article/eu-banks-regulations/foreign-banks-face-new-eu-set-up-to-allow-more-scrutiny-idUSL8N1LL1RO.

  30. See European Commission (2017).

  31. For a discussion of equivalence as a potential solution to the market access problem see below Sect. 5.2.

  32. Charles Grant, director of the Centre for European Reform, said Commission officials insist ‘not entirely convincingly’ that this tightening is unrelated to Brexit.

  33. Reynolds (2016).

  34. European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No. 1095/2010 establishing a European Supervisory Authority (European Securities and Markets Authority) and amending Regulation (EU) No. 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third-country CCPs (13 June 2017), COM(2017) 331 final.

  35. See already Alex Barker and Jim Brunsden, ‘EU plan to curb City’s euro clearing set to be flashpoint in Brexit talks’, Financial Times (16 December 2016), p 1. The lack of competence was the reason the UK successfully challenged the first ECB location decision back in 2011.

  36. Chris Flood, ‘70% of asset managers fear Brexit fund passport loss’, Financial Times (5 December 2016), FTfm 1.

  37. Burgess (2011); Gloria Tyler, ‘Financial Services: contribution to the UK economy’, House of Commons Standard Note (26 February 2015).

  38. Financial Conduct Authority (FCA), Letter to Andrew Tyrie, Chairman of the House of Commons Treasury Committee (17 August 2016), available at https://www.parliament.uk/documents/commons-committees/treasury/Correspondence/AJB-to-Andrew-Tyrie-Passporting.pdf.

  39. Wyman (2016).

  40. Ibid., p 3.

  41. Donal Griffin and Oliver Suess, ‘Thiam Says Passport Loss Risks 20% of His Bank’s U.K. Volume’, Bloomberg (28 September 2016), available at http://www.bloomberg.com/news/articles/2016-09-28/credit-suisse-ceo-says-no-passporting-risks-20-of-london-volume.

  42. Wyman (2016), p 4.

  43. Wyman (2016), p 4.

  44. George Parker and Jim Pickard, ‘Osborne warns Gove of economic “catastrophe”’, Financial Times (London, 10 May 2016), p 3.

  45. Case T-496/11 United Kingdom of Great Britain and Northern Ireland v. European Central Bank ECLI:EU:T:2015:133.

  46. Stéphane Boujnah, chief executive of Euronext, has already said that, at present, 30-45 per cent of trading in euro-denominated assets is done out of London, which is ‘only acceptable while the UK is part of the EU and the single market’. See Michael Stothard, ‘Brexit would end City’s dominance of euro trading’, FT Online (20 June 2016), https://www.ft.com/content/9a52a97c-36ba-11e6-a780-b48ed7b6126f. See also Alex Barker and Jim Brunsden, ‘EU plan to curb City’s euro clearing set to be flashpoint in Brexit talks’, Financial Times (16 December 2016), p 1.

  47. Parker and Pickard, above n. 44.

  48. Philip Stevens, ‘The perils of a populist paean to ignorance’, Financial Times (24 June 2016), p 13.

  49. Binzer Hobolt (2016), p 1259.

  50. But see Jonathan Ford, ‘Why a hard Brexit would hurt European banks the most’, Financial Times (11 December 2017), p 18.

  51. FCA, above n. 38.

  52. Borrowing from Anthony Browne, chief executive of the BBA.

  53. See Armour and Ringe (2011), p 155.

  54. Jim Brunsden, ‘EU finance pact “more urgent” since Brexit’, Financial Times (15 September 2016), p 28. Other commentators agree and opine that Brexit will give a positive push to the remaining Member States to carry on with implementing CMU. See Price (2016), p 1.

  55. Attracta Mooney, ‘Fears Brexit will slow Capital Markets Union’, Financial Times (18 July 2016), FTfm 3; Tim Burke, ‘Deutsche economist: Brexit could “seriously hurt” EU’s capital markets’, Financial News (20 October 2016), http://www.efinancialnews.com/story/2016-10-20/david-folkerts-landau-deutsche-bank-brexit-european-capital-markets; Davis Polk Client Memorandum, ‘Lex et Brexit—the Law and Brexit’ (Issue 5, September 1, 2016), https://www.davispolk.com/sites/default/files/2016-09-01-lex-et-brexit-the-law-brexit-issue-5.pdf.

  56. Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), speaking at a Reuters regulation summit: see Huw Jones, ‘Brexit would damage EU capital markets union: watchdog says’, Reuters (18 May 2016), http://www.reuters.com/article/us-finance-summit-britain-eu-idUSKCN0Y91J8.

  57. Michael Cole-Fontayn, chairman of the Association for Financial Markets in Europe (AFME), in an interview with Handelsblatt Global Edition (13 June 2016), available at https://global.handelsblatt.com/finance/brexit-threatens-e-u-financial-union-539886.

  58. Chris Giles, ‘Carney warns EU over “crucial” City’, Financial Times (1 December 2016), p 2.

  59. Giles, above n. 58.

  60. Clemens Fuest, Interview with Bloomberg, 20 September 2016, available at http://www.bloomberg.com/news/videos/2016-09-20/an-easy-brexit-break-up-best-for-both-sides-says-fuest: ‘If there is limited or no access to the internal market for British industry and banks it would be bad for Britain but it would also be bad for Europe. Exports to Britain would suffer because, if London suffers as a financial centre, German and French exports to Britain would suffer. So we have a common interest in limiting the economic damage’.

  61. See, for a recent discussion, Ringe (2016), p 175.

  62. This is according to a leaked memo of a conversation between Mr Davis and City representatives in mid-November 2016, as published by the Financial Times.

  63. For example, the UK’s secret arrangements with carmaker Nissan and speculation about sweetheart terms to convince the firm to build new models in the north of England have touched a nerve with continental rivals. See Alex Barker, ‘UK ally takes hard Brexit line’, Financial Times (21 November 2016), p 11, reporting on Denmark’s position: ‘Denmark is also fixated on its competitiveness. Britain is seen as a rival for investment, whatever direction it takes with Brexit. Danes fear London will relax regulations, standards or taxes to entice business’.

  64. See, for example, Rhea Wessel, ‘With Brexit on the horizon, Frankfurt’s star is on the rise’, BBC Capital (27 October 2016), available at http://www.bbc.com/capital/story/20161025-with-brexit-on-the-horizon-frankfurts-star-is-on-the-rise.

  65. House of Lords European Union Committee (2016), para. 37.

  66. Alex Barker and Jim Brunsden, ‘EU plan to curb City’s euro clearing set to be flashpoint in Brexit talks’, Financial Times (16 December 2016), p 1.

  67. See above n. 34 and accompanying text.

  68. S&P Global Ratings, ‘Requiring Euro-Denominated Contracts’ Clearing Within The EU Would Be Disruptive But Could Have Limited Impact On Ratings’ (17 November 2016), available at https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1758126&SctArtId=408068&from=CM&nsl_code=LIME&sourceObjectId=9876220&sourceRevId=3&fee_ind=N&exp_date=20261117-15:33:02.

  69. Cited according to Barker and Brunsden, above n. 66.

  70. S&P Global Ratings, above n. 68.

  71. See, for example the Statement after an Informal meeting of the Heads of State or Government of 27 Member States, as well as the Presidents of the European Council and the European Commission at Brussels (15 December 2016), available via http://www.consilium.europa.eu/press-releases-pdf/2016/12/47244652443_en.pdf: ‘We reiterate that any agreement will have to be based on a balance of rights and obligations, and that access to the Single Market requires acceptance of all four freedoms’.

  72. Council Decision of 7 May 1985 on the Communities’ system of own resources, [1985] OJ L128/15, Art. 3.

  73. The rebate is negotiated as part of the Multiannual Financial Framework (MFF) every 7 years and must be unanimously agreed. See European Commission, Commission Working Document on calculation, financing, payment and entry in the budget of the correction of budgetary imbalances in favour of the United Kingdom (‘the UK correction’) in accordance with Articles 4 and 5 of Council Decision 2014/xxx/EU, Euratom on the system of own resources of the European Union, COM(2014) 271 final.

  74. See the Protocols attached to the TEU: Protocol (No. 15) on Certain Provisions Relating to the United Kingdom of Great Britain and Northern Ireland, and Protocol (No. 16) on Certain Provisions Relating to Denmark.

  75. Formally, however, these other ‘Outs’ are obliged to join the common currency once they fulfil the legal criteria for Euro membership.

  76. Hüttl and Schoenmaker (2016).

  77. Formally, the ESM is an intergovernmental organisation located in Luxembourg, which operates under public international law for all Eurozone Member States.

  78. The most prominent examples are Euro Plus Pact 2011; the ‘Six Pack’ 2011 (which applies to all EU Member States but with some special rules for the Eurozone); the Fiscal Compact 2013 (an intergovernmental agreement, involving all EU28 except the UK and the Czech Republic); and the ‘Two Pack’ 2013 (mostly concerning the Eurozone).

  79. For example, concerning the Area of freedom, security and justice and the Charter of Fundamental Rights are both subject to numerous opt-outs.

  80. The UK and Ireland opted out of Schengen when it became part of EU law in 1997.

  81. The anniversary declaration states that ‘We will act together, at different paces and intensity where necessary’ and that ‘We will allow for the necessary room for manoeuvre at the various levels to strengthen Europe’s innovation and growth potential’. See the Rome Declaration of the Leaders of 27 Member States and of the European Council, the European Parliament and the European Commission (25 March 2017), available at http://europa.eu/rapid/press-release_STATEMENT-17-767_en.htm.

  82. Stefan Wagstyl and Guy Chazan, ‘Schäuble backs away from EU of “ever closer union”’, Financial Times (24 March 2017), p 6.

  83. James Blitz, ‘Commons rebellion over Brexit’, Financial Times Brexit Briefing (10 October 2016).

  84. R (Gina Miller) v. Secretary of State for Exiting the European Union [2016] EWHC 2768 (Admin).

  85. In the House of Commons, there were about 480 MPs in favour of Remain just before the Brexit referendum compared with 150 opposed. The House of Lords was also highly supportive of the Remain camp.

  86. Young (2016).

  87. Henry Mance, ‘May dealt Brexit blow at hands of Tory rebels’, Financial Times (14 December 2017), p 2.

  88. Alastair Jamieson, ‘Scotland Seeks Independence Again After U.K. “Brexit’ Vote”’, NBC News (24 June 2016), http://www.nbcnews.com/storyline/brexit-referendum/scotland-could-seek-independence-again-after-u-k-brexit-vote-n598166.

  89. Jamie Ross, ‘Sturgeon Launches Legal Case To Stop The UK Government Triggering Article 50’ (8 November 2016), https://www.buzzfeed.com/jamieross/sturgeon-launches-legal-case-to-stop-the-uk-government-trigg. See also Guy Faulconbridge and Michael Holden, ‘In a battle over Brexit, court challenger fears Britain’s demons have been unleashed’, Reuters (30 November 2016), http://uk.reuters.com/article/uk-britain-eu-article50-miller-idUKKBN13P1SI.

  90. The Scottish Government, ‘Scotland’s Place in Europe’ (December 2016), http://www.gov.scot/Resource/0051/00512073.pdf.

  91. Welsh Government, ‘Securing Wales’ Future: Transition from the European Union to a new relationship with Europe’ (January 2017), https://beta.gov.wales/sites/default/files/2017-01/30683%20Securing%20Wales%C2%B9%20Future_ENGLISH_WEB.pdf.

  92. Jon Stone, ‘Britain agrees Northern Ireland can keep EU regulations after Brexit, leaked draft agreement suggests’, The Independent (4 December 2017), available at http://www.independent.co.uk/news/uk/politics/brexit-northern-ireland-border-single-market-customs-union-theresa-may-michel-barnier-david-davis-a8090561.html.

  93. John Curtice, ‘What do Voters Want from Brexit?’ (NatCen, London 2016), available at http://whatukthinks.org/eu/wp-content/uploads/2016/11/Analysis-paper-9-What-do-voters-want-from-Brexit.pdf.

  94. Joe Watts, ‘Brexit: Majority of British people believe UK should stay in the EU, finds latest poll’, The Independent (21 September 2017), available at http://www.independent.co.uk/news/uk/politics/brexit-majority-uk-british-people-stay-in-eu-not-leave-latest-poll-theresa-may-florence-speech-tory-a7960226.html.

  95. At the Birmingham Conservative party conference in October 2016, Prime Minister May made it clear that she preferred to maintain Single Market access, but that she was adamant to restrict immigration and to strive off the jurisdiction of the European Court of Justice. If given a choice between the two—if they are irreconcilable—she suggested to prefer the latter. This speech has widely been interpreted as her first true announcement of a hard Brexit. See George Eaton, ‘Theresa May signals that the UK is heading for hard Brexit’, New Statesman (2 October 2016), http://www.newstatesman.com/politics/uk/2016/10/theresa-may-signals-uk-heading-hard-brexit; Kate Allen, George Parker, and Alex Barker, ‘May sets Brexit course with hint of clean break from single market’, Financial Times (3 October 2016), p 1.

  96. George Parker and Alex Barker, ‘May eases Brexit fears but warns UK will walk away from “bad deal”’, Financial Times (18 January 2017), p 1.

  97. HM Government (2017), p 35.

  98. For example, foreign secretary Boris Johnson claimed that it is ‘baloney’ that the UK cannot get a free trade agreement if it ends free movement for EU workers.

  99. Ian Wishart and Timothy Ross, ‘A Hard Brexit Looms Large With Resignation of U.K. Envoy to EU’, Bloomberg (4 January 2017), https://www.bloomberg.com/politics/articles/2017-01-03/a-hard-brexit-looms-large-with-resignation-of-u-k-envoy-to-eu.

  100. Joint report from the negotiators of the European Union and the United Kingdom Government on progress during phase 1 of negotiations under Article 50 TEU on the United Kingdom’s orderly withdrawal from the European Union (8 December 2017), para. 49, available at https://ec.europa.eu/commission/sites/beta-political/files/joint_report.pdf.

  101. David Allen Green, ‘Brexit: what regulatory alignment means and does not mean’, Financial Times (8 December 2017), https://www.ft.com/content/4fddeb2e-7e92-3d81-b0a7-9dfeb6055510.

  102. Jennifer Rankin, ‘UK cannot have a special deal for the City, says EU’s Brexit negotiator’, The Guardian (18 December 2017), available at https://www.theguardian.com/politics/2017/dec/18/uk-cannot-have-a-special-deal-for-the-city-says-eu-brexit-negotiator-barnier.

  103. Christian Noyer, ‘Brexit means the end of single market access for London’, Financial Times (16 March 2017), p 13.

  104. See Eidenmüller (2016).

  105. Her speech at the Birmingham party conference is available in full length at http://www.independent.co.uk/news/uk/politics/theresa-may-speech-tory-conference-2016-in-full-transcript-a7346171.html.

  106. See Eidenmüller (2016).

  107. John Ashmore, ‘Nigel Farage warns of unprecedented “political anger” after High Court ruling’, Politics Home (6 November 2016), https://www.politicshome.com/news/europe/eu-policy-agenda/brexit/news/80540/nigel-farage-warns-unprecedented-political-anger.

  108. There is a legal debate on whether the notice given under Article 50 is revocable. See Adam Payne, Jim Edwards and Lianna Brinded, ‘Can Article 50 be reversed?’, Business Insider UK (14 June 2017), http://www.businessinsider.de/can-brexit-be-reversed-2017-6. The legal position is unclear. Politically, however, a reversal would amount to suicide for the British Government; moreover, it is not clear that the EU would be willing to unconditionally welcome the UK back at this stage.

  109. The Economist, ‘The Rule of Flaw’, 12 May 2016, http://www.economist.com/news/leaders/21698650-italy-has-been-flirting-banking-crisisand-brussels-partly-blame-rule-flaw.

  110. See formerly EC Treaty Art. 121, now modified to TFEU Art. 140.

  111. Now TFEU Art. 126.

  112. Ngai (2012).

  113. Paul de Grauwe, ‘The politics of the Maastricht convergence criteria’, Vox CEPR Policy Portal (15 April 2009), http://voxeu.org/article/politics-maastricht-convergence-criteria.

  114. See on this Quigley (2014), p 131.

  115. TFEU Arts. 107, 108.

  116. Initially, the Commission relied on Art. 107(3)(c) to allow for exceptions. This requires the recipient to be in financial difficulty—as the crisis progressed, it became apparent that it did not work for wider systemic issues and liquidity problems. In consequence, the Commission’s approach shifted to use Art. 107(3)(b) (‘serious disturbance in the economy of a Member State’) as the predominant exception, which granted more leeway.

  117. Case C-62/14 Gauweiler ECLI:EU:C:2015:400.

  118. See, inter alia, Yowell (2014), p 81.

  119. The German Constitutional Court referred the case to the CJEU: see decision of 18 July 2017 (2 BvR 859/15, 2 BvR 980/16, 2 BvR 2006/15, 2 BvR 1651/15).

  120. The ESM is the permanent successor to the interim solutions European Financial Stabilisation Mechanism (EFSM) and European Financial Stability Facility (EFSF).

  121. See also above n. 77.

  122. Case C-370/12 Thomas Pringle v. Government of Ireland ECLI:EU:C:2012:756.

  123. Alex Barker and Jim Brunsden, ‘Failing banks regime faces tough test’, Financial Times (6 December 2016), p 4.

  124. Rachel Sanderson and Alex Barker, ‘Renzi ready to defy Brussels over bailout for Italy’s troubled banks’, Financial Times (4 July 2016), p 1; Steve Scherer, ‘Renzi says wants to avoid EU’s “bail-in” to restructure banks’, Reuters (2 August 2016), http://www.reuters.com/article/eurozone-banks-italy-idUSL8N1AJ38A.

  125. In the 60 years of the EU’s existence, there is only one single real CJEU decision where an EU legal act failed the test of competence: Case C-376/98 Germany v. Parliament and Council (Tobacco Advertising I) [2000] ECR I-8419 = ECLI:EU:C:2000:544.

  126. See Case C-270/12 United Kingdom v. European Parliament and Council ECLI:EU:C:2014:18, concerning a Regulation on Short Selling.

  127. For example, Yowell (2014).

  128. See, for example, Pistor (2013), p 315.

  129. Ibid.

  130. Mehrling (2010), pp 34–35.

  131. The Government White Paper, HM Government (2017), also hints at this by proposing a ‘new strategic partnership agreement’ with the EU, which should include ‘the freest possible trade in financial services between the UK and EU Member States’. Ibid., at para. 8.25.

  132. Phase 1, the terms of the separation, was completed in December 2017. Phase 2 is expected to begin in March 2018.

  133. Peter Foster, ‘Brexit deal could be reached by October 2018, says lead EU negotiator Michel Barnier’, The Telegraph (6 December 2016), http://www.telegraph.co.uk/news/2016/12/06/eu-brexit-negotiator-michel-barnier-reiterate-no-cherry-picking/.

  134. In contrast, Michel Barnier insists that the transition period should end by December 2020. See Alex Barker, Jim Brunsden, and Henry Mance, ‘Brexit transition should end by 2021, says Barnier’, Financial Times (21 December 2017), p 4.

  135. A Davis Polk Client Memorandum, ‘Lex and Brexit—The Law and Brexit’, issue 9 (30 November 2016) expects negotiations to last between 5 and 10 years.

  136. See also Ringe (2017), p 45.

  137. ‘The Road to Brexit’, Leader, The Economist (8 October 2016).

  138. Ibid.

  139. George Parker and James Blitz, ‘Hammond draws fire for Brexit caution’, Financial Times (18 October 2016), p 3.

  140. Joint report from the negotiators of the European Union and the United Kingdom Government on progress during phase 1 of negotiations under Article 50 TEU on the United Kingdom’s orderly withdrawal from the European Union (8 December 2017), para. 49, available at https://ec.europa.eu/commission/sites/beta-political/files/joint_report.pdf.

  141. David Allen Green, ‘Brexit: what regulatory alignment means and does not mean’, FT.com (8 December 2017), https://www.ft.com/content/4fddeb2e-7e92-3d81-b0a7-9dfeb6055510; Wolfgang Münchau, ‘Sneaking back into the Single Market’, Financial Times (11 December 2017), p 13.

  142. Jean Pisani-Ferry, Norbert Röttgen, André Sapir, Paul Tucker, and Guntram B. Wolff, ‘Europe after Brexit: A proposal for a continental partnership’ (25 August 2016), available at http://bruegel.org/2016/08/europe-after-brexit-a-proposal-for-a-continental-partnership/.

  143. See European Parliament, Directorate-General for Internal Policies/Economic Governance Support Unit, ‘Briefing: Third-country equivalence in EU banking legislation’ (7 November 2016); Vincenzo Scarpetta, ‘Understanding regulatory equivalence—an effective fall-back option for UK financial services after Brexit?’, OpenEurope blog post (19 October 2016), available at http://openeurope.org.uk/today/blog/understanding-regulatory-equivalence-an-effective-fall-back-option-for-uk-financial-services-after-brexit/. For an overview, see the equivalence table at http://ec.europa.eu/finance/general-policy/docs/global/equivalence-table_en.pdf.

  144. Ferran (2017), p 40.

  145. Regulation (EU) No. 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No. 648/2012, [2014] OJ L173/84.

  146. See MiFIR Art. 46(2)(a).

  147. See Scarpetta, above n. 143.

  148. European Parliament Economic Governance Support Unit, ‘Briefing—Brexit: the United-Kingdom and EU financial services’ (9 December 2016), pp 3–4.

  149. Undertakings for the Collective Investment of Transferable Securities.

  150. Other examples of legal acts that do not provide for a passport are CRD IV and (in parts) Solvency II.

  151. Sean Tuffy, ‘Hedge funds in the UK need a hard-Brexit contingency plan’, Financial Times (5 December 2016), FTfm9.

  152. Wymeersch (2017).

  153. Scarpetta, above n. 143: the process ‘can easily trespass into politics—not least because the Commission can wait as long as it wishes to issue its final verdict’.

  154. Jonathan Ford, ‘Brexit equivalence deal could spare City pain of Morton’s fork’, Financial Times (12 December 2016), p 20.

  155. Alex Barker and Jim Brunsden, ‘EU review casts doubt on City’s hopes for “equivalence” as Brexit last resort’, Financial Times (7 November 2016), p 1.

  156. European Commission (2017).

  157. Ibid.

  158. Barker and Brunsden, above n. 155, p 3.

  159. Armour (2017), p S54. See, for example, the ‘expanded equivalence’ proposal made by Reynolds (2016).

  160. For a critical comment, see Martin Wolf, ‘A post-Brexit transition must be the priority’, Financial Times (30 November 2016), p 13.

  161. See Silla Brush and Benjamin Bain, ‘EU Banks Closer to $5 Billion Respite With SEC Clearing Rule’, Bloomberg (28 September 2016), https://www.bloomberg.com/news/articles/2016-09-28/eu-banks-eye-5-billion-capital-reprieve-as-sec-votes-on-rules.

  162. Jonathan Ford, ‘City probes ways to access EU market after Brexit’, Financial Times (London, 11 April 2017), p 3.

  163. One example is the UK concept of ‘overseas persons exclusion’ under Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 Art. 72.

  164. For example, in the AIFMD, above n. 12.

  165. Patrick Jenkins, ‘Banking on a back-to-back Brexit’, FT Brexit Briefing (3 November 2017), available at https://www.ft.com/content/4fa2fc60-c093-11e7-b8a3-38a6e068f464.

  166. European Banking Authority (EBA) (2017).

  167. Jim Pickard, ‘UK’s sector-by-sector Brexit assessments released’, FT.com (21 December 2017), available at https://www.ft.com/content/bcebe3f8-e664-11e7-8b99-0191e45377ec.

  168. Donal Griffin and Oliver Suess, ‘Thiam Says Passport Loss Risks 20% of His Bank’s U.K. Volume’, Bloomberg (28 September 2016), available at https://www.bloomberg.com/news/articles/2016-09-28/credit-suisse-ceo-says-no-passporting-risks-20-of-london-volume.

  169. ‘This will not impact Lloyd’s’, Interview of Lloyd’s Chairman John Nelson with Versicherungswirtschaft (21 October 2016), available at http://versicherungswirtschaft-heute.de/dossier/this-will-not-impact-lloyds/. In December 2016, Lloyd’s announced to set up a separate subsidiary in Germany or the Netherlands. See Emma Dunkley and Martin Arnold, ‘Lloyds eyes European arm if UK loses market access’, Financial Times (28 December 2016), p 17.

  170. Philippe Morel, Charles Teschner, Duncan Martin, Will Rhode, and Andreas Bohn, ‘Global Capital Markets 2016: The Value Migration (Part 2)—Assessing the Impact of Brexit’ (BCG White Paper 2016), available at http://image-src.bcg.com/BCG_COM/BCG-Impact-of-Brexit-on-Capital-Markets-July-2016_tcm9-38972.pdf.

  171. Max Stern, cofounder of Foraus, a foreign policy forum (cited according to Ralph Atkins, ‘Swiss head for EU immigration climbdown’, Financial Times (14 December 2016), p 8).

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Acknowledgements

I thank participants at the NCMF meeting in Helsinki, a lunch seminar at the Danish National Bank, Copenhagen, a Law & Finance conference on the future of European capital markets, hosted by Oxford, Columbia and ECGI, a routable discussion on ‘Negotiating Brexit’ at the University of Oxford, a conference on ‘Financial Regulation and the Rule of Law’ at Wharton, University of Pennsylvania, and a symposium at ZEW Mannheim for very helpful comments on earlier versions of this paper.

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  1. Professor of Law and Director, Institute of Law and Economics, University of Hamburg, Hamburg, Germany

    Wolf-Georg Ringe (Professor of Law and Director; Visiting Professor)

  2. Visiting Professor, Faculty of Law, University of Oxford, Oxford, UK

    Wolf-Georg Ringe (Professor of Law and Director; Visiting Professor)

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Ringe, WG. The Irrelevance of Brexit for the European Financial Market. Eur Bus Org Law Rev 19, 1–34 (2018). https://doi.org/10.1007/s40804-018-0106-6

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