How To Increase Profitability Through MiFID II
Our blog, Financial services: Regulation tomorrow offers a convenient resource for those keeping track of the evolving and increasingly complex global financial services regulatory environment. It reports on financial services regulatory developments and provides insights and commentary across Africa, Asia, Australia, Canada, Europe and the United States. We cover a broad range of financial services regulatory topics including banking and capital adequacy regulation, clearing and settlement, anti-money laundering, insurance, regulation and compliance retail and wholesale conduct and securities regulation. MiFID II’s compliance deadline is approaching rapidly, and it is imperative that APAC firms – particularly those with EU subsidiaries or interacting with EU companies – assess whether they are impacted, and conduct thorough gap analysis to identify what work needs to be done. As many EU financial institutions will readily acknowledge, MiFID II compliance has been a huge process commanding vast resources and investments. APAC firms need to evaluate urgently what their MiFID II shortfalls are and fix them if they are to continue dealing with EU firms.
During the last financial crisis, many investment firms struggled to answer simple questions quantifying exposure to a sector, entity or type of instrument. In many cases it took weeks and a team of analysts to answer these questions because there are many complex derivatives and there wasn’t any real transparency to allow aggregation of those exposures.
UK securitisations involving a single originator acting as risk retainer (for example most RMBS, credit card, auto and corporate securitisations) will continue to be eligible as non-manger originator risk retainers in a full Brexit scenario but, as with CLO manager originator structures, they would also require restructuring (if marketing to EU regulated investors is required) if Tang’s proposal, to limit risk retainers to EU regulated entities, is implemented.
Currency movements also affect inflation. Consider the recent example of the UK. When the pound fell sharply against other currencies following the Brexit referendum in June, it meant that goods from abroad were suddenly more expensive to Britons. Prices at petrol pumps, with oil priced in dollars, rose almost immediately. Other imported goods are expected to become more expensive in the coming months.
Many corporates have used English schemes of arrangement to restructure or reduce their debt and to avoid having to file for formal insolvency in their home Member State. However, one of the conditions for obtaining the English court’s sanction for a scheme of arrangement is that the scheme should be recognised and effective in any other relevant jurisdiction, so that creditors in those other jurisdictions cannot avoid the effects of the scheme and gain an unfair advantage over other scheme creditors. This is usually achieved by way of the Recast Regulation. However, post-Brexit it may be difficult to persuade an English court that an English scheme of arrangement will be recognised and enforced in relevant Member States, especially if the UK chose not to accede (or was unable to negotiate accession) to the Lugano Convention for any reason (see Jurisdiction above).
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