Brexit Ramifications For EU Investors - Protection Sought Through ESMA

  • Feb 13, 2019 GMT
  • Team Kalkine
Brexit Ramifications For EU Investors - Protection Sought Through ESMA

Brexit Challenges – Growing risk to the UK economy

The Brexit uncertainty has raised critical economic questions to be answered and the financial burden that investors are facing both in the EU and Britain to safeguard their interests. Just a few days to go for Brexit, both the EU and the UK have not yet reached to any agreement, which could provide an alternative proposal with regards to the border in Ireland. Announced by Downing Street, alternative arrangements working group comprising of five conservatives – Marcus Fysh, Steve Baker, Owen Paterson (hard-line Brexiters), and Nicky Morgan and Damian Green (compromise minded), will be focusing on establishing the viability of plans to avoid a hard border in Ireland using tech-driven approaches.

The EU holds a different view. Sabine Weyand, EU’s deputy chief Brexit negotiator, mentioned in a retweet on BBC reality check article, saying the technical solution would not be feasible in the next few years.

Asset Managers Raise Concerns

The asset managers in Europe have reached the doorsteps of ESMA, European Securities and Market Authority, in the wake of the latest threat, a no-deal Brexit. The hard Brexit will leave the fund managers across the continent lose their ability to invest in London-listed shares of companies. On the other hand, a London-only listed stock might still be accessible under certain circumstances.

The investors have now called on ESMA to find a way for them to keep trading in London-listed shares of major companies, some of them being Ryanair, Unilever and Royal Dutch Shell. The London stock exchange is far more liquid and a bigger market than other exchanges within the EU, making it a critical one for fund managers.

There are around 90 companies impacted by this issue, the significant number of these are listed in both Dublin and London and many of them in Amsterdam as well.

The ESMA is reportedly under political pressure to avoid granting equal-billing for the shares listed on London Stock exchange in case of a no-deal Brexit.

The LSE has said that the EU investors will have to use local listings to trade such shares. It has complicated the matter even more for the regulator as it will be a breach as per the MiFiD II regulations if there is any restriction on the EU investor to access London listings. As per MiFiD II regulations, ESMA must adhere to best practices which all investors must follow for daily financial markets transactions.

A few lawyers are even worried that some companies may even shun their listing outside of London. Outside London, the authorities may also be more flexible in implementing a few of the MiFiD II requirements.

Overall, it does not look like to be a clear strategic move as many strings need to be pulled up. Market players are thus watching out for major developments in the area to have clarity with regards to investments.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

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