|Commonwealth Bank of Australia||Amsterdam|
|Westpac Banking Corp||Frankfurt|
|Hudson River Trading||Dublin|
With just a few months before Brexit day, a significant number of relocation strategies have been put into place. Furthermore, Reuters indicates that Brexit contingency plans are approaching a point of no going back. Therefore, we ask the question: which are the winning cities so far? According to the Global Financial Centers Index, Frankfurt is the highest-scoring city in the EU apart from London. In addition, data from Reuters shows that Amsterdam is attracting a notable number of trading firms, while Luxembourg Times reports that Paris seems to be perceived as Europe’s trading hub after Brexit. Nonetheless, with the latest relocation announcement, including JP Morgan Asset Management, Luxembourg continues to be on the top of the list of preferred destinations for Asset Managers and Insurers.
With Brexit talks still facing an impasse, EU countries are still urging companies to prepare for all Brexit scenarios. Luxembourg, being the frontrunner in terms of business relocations for asset managers and insurers, is also moving forward with its preparations. For example, Luxembourg’s regulatory body CSSF has released two new circulars, 18/697 and 18/698, covering the substance, governance and organization of alternative investment fund depositaries, and the Luxembourg investment management companies, respectively.
Ignites Europe highlights the fact that with circular 18/698, the financial regulator is notifying fund management companies relocating to the Grand Duchy that all of their senior conducting officers must be based in Luxembourg or the surrounding locations in the Great Region (Belgium, France and Germany). A Luxembourg-based lawyer, interviewed by Luxembourg Times, expressed concerns about the sector in case of a ‘no-deal’ Brexit. The lack of a withdrawal agreement could make delegation impossible and thus put the sector in ‘danger’.
CSSF has also expressed concerns about asset managers implementing their Brexit contingency plans, writes Ignites Europe. The process of obtaining authorization could be slowed down by the EU Commissions’ proposal to grant extensive power to Esma to manage delegation request, alongside national regulators, in the context of Brexit. According to the source, however, Luxembourg is taking the necessary actions to ensure all the requirements are met. Moreover, the Austrian presidency of the EU is committed to finding a way to stop this controversial proposal that will require countries to seek Esma’s approval every time an asset manager applies for delegation of activities outside the EU (Ignites Europe).
Overall, Luxembourg seems ready to welcome Brexit movers. Luxembourg Times has been monitoring the topic closely and according to the media, there have been significant improvements in terms of education. Several new schools have been opened and a special team is now available to support foreign children who have difficulties in integrating and struggle with learning new languages. Moreover, as noted by Bloomberg, English-language education in the Grand Duchy has grown significantly since the UK voted to leave the EU in 2016, which according to experts highlights the country’s effort to ensure a smooth transition.
Furthermore, Luxembourg remains a strong economy and continues to keep its ratings. In addition to its ‘AAA’ ratings (S&P and Fitch), the Grand Duchy has been placed among the world’s top performers in green finance. According to Luxembourg Times, the future looks even ‘greener’ for the country since the financial center is expected to improve over the next few years. All these have been supported by a recent study by KPMG, which shows that 2017 has been a stable year for the banking sector marked by growth in financial technologies.
Even though Brexit talks in Brussels did not result in a concrete deal on the future relationship between the UK and the EU after Britain leaves the bloc (Bloomberg), recent information shows that there have been signs of progress. Although Reuters reports that an agreement on financials services has been discussed, no deal has yet been reached. The settlement under scrutiny focuses on the EU’s existing system of financial market access based on ‘equivalence’. Ignites Europe announced that this scenario will ensure that UK-based firms will be able to continue doing business in the EU. Both London and Brussels, however, reject any speculations that a deal has been finalized, but a move forward on that issue could unlock the Brexit negotiations (Financial Times).
Last month the UK’s Prime Minister, Theresa May, has made two concessions at the meeting in Brussels in order to secure a deal — she agreed to extend the transition period and signaled that she is willing to drop the time limit on the Irish border. Nevertheless, her willingness to secure a deal with the EU has put her position at home at risk.
According to The Telegraph, May is facing a rebellion within her government. She does not seem to have the necessary support in parliament for her Brexit deal and this is where things get complicated, writes Luxembourg Times. Despite all this, the Brexiters do not seem to have the numbers to challenge May’s leadership. According to Bloomberg, there is no alternative to take her place but nothing seems to be certain.
The Bank of England (BoE) has expressed concerns over cross-border financial services in case of a ‘no-deal’ Brexit. As stated by Reuters, the BoE warns that the lack of agreement between London and Brussels could have crucial implications on the sector. In that line of thoughts, Luxembourg Times reported that the German regulator BaFin is working towards opening direct links to the UK’s FCA to secure a smooth transition and protect cross-border securities trading after Brexit. Furthermore, a research conducted by Ignites Europe showed that Société Générale and BNP Paribas Securities Services will be affected by the UK’s decision to restrict EU depositories from operating in the British market. The FCA has warned that ‘post Brexit EEA depositaries will only be able to service the UK-domiciled funds if they have an entity that is incorporated in the UK’ (Consultation Paper CP18/28**).
In addition, Germany is committed to help moving trillions in swaps from the UK to protect banks and fund managers that will lose access to the UK’s clearinghouse in case of no withdrawal agreement. Deutsche Boerse is developing a service to help clients transfer derivatives trades from LCH in London to Eurex Clearing in Frankfurt (Luxembourg Times).
As from the UK’s side, the FCA has introduced a proposal for a temporary permissions regime (TPR) for EEA firms that currently access the UK market via passporting licenses (TP firms). Following that, a consultation paper on how the regime will work has been published. The TPR will come into force on the day of exit and is intended to run for no more than three years.
To find out more details about the regime and the implications for EEA firms, please read the KPMG Brexit Temporary Permissions Regime alert.
© 2020 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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