On 23rd June 2016, a majority of British people voted to leave the EU. On 1st January 2021, the effective date of entry into force of the EU-UK Withdrawal Agreement, a lengthy negotiation process was completed which led to the withdrawal of the United Kingdom from the EU and the end of its alignment with Community standards. This heralded a period of intense regulatory change during which CACEIS put in place systems to help its clients cope with the new challenges. Here we focus on the solutions and services developed by CACEIS.
At midnight on 1st January 2021, more than 4.5 years after the referendum, the transition period which started on 31 January 2020 came to an end, and the United Kingdom formally withdrew from the European Union and Euratom, the European Atomic Energy Community.
As of today, Community law no longer applies to the British Isles, and relations between the 27 EU members and the United Kingdom are now governed by the agreement signed on 24th December 2020 between the two parties.
"Questions about an agreement between London and Brussels never really covered the banking and financial sector", comments Eliane Meziani, Senior Advisor-Public Affairs at CACEIS. "This agreement (over 1,250 pages) is essentially a “no deal” for the financial sector", she adds.
With the hope of reaching a compromise before the end of the transition period, European and British negotiators had decided to postpone discussion on post-Brexit financial services to a subsequent agreement. The political declaration signed in conjunction with the Withdrawal Agreement stated that by March 2021, both Parties will agree on a memorandum of understanding defining the framework for such cooperation. The Parties shall, inter alia, consider how to make progress on both sides in determining equivalence between the Union and the United Kingdom, without prejudice to the unilateral and autonomous decision-making of each Party. This lack of agreement by 1st January 2021 resulted in UK financial players losing their European passport, making access to the single market conditional on regulatory equivalence agreements being negotiated between the two parties at some later date.
On the first day of 2021, London had been granted only two equivalence decisions out of a total of 39. The first authorised UK automated clearing houses (ACHs) to continue their euro operations for 18 months (until June 2022) and the second authorised EU issuers to rely on the British central depositories for notarial and centralised custody services in respect of securities organised under the law of a Member State for a period of six months (until 30th June 2021).
Brexit and CACEIS: what kind of governance?
From early 2016, CACEIS understood Brexit would be a major issue for itself and its clients. As a result, a system of workgroups was set up to provide regular monitoring to assess and find solutions for any impacts. The workgroups have already deployed several solutions to support clients through this unprecedented transition period for the financial sector.
CACEIS has been active involved with many industry working groups, allowing the group to take advantage of solutions developed within these bodies, compare them with our ongoing internal action plans and report on them via weekly updates - a monitoring and consolidation tool - managed by the “Task Force Brexit” which was active until the end of the transition period. This monitoring dashboard has helped identify issues for certain activities and provide an appropriate and rapid response to questions such as the continued collaboration between the Dutch entity of CACEIS and the UK-based clearing agencies or EMIR reporting requests from clients on their UK-based funds.
In parallel with “Task Force Brexit” led by Christophe Dupont, Group Head of Organisation and Transformation, a coordination unit led by Daniel Pascaud, Global Head of Operations, Banking & Custody Solutions and Pierre Cimino, Global Head of International Development, presented senior management with a regular round-up of CACEIS' Brexit activities. Brexit is a recurring topic at Executive Management meetings, and has been the subject of careful steering and commitment from across CACEIS’ business lines.
New applications underway for CACEIS in the UK
Since 1 January 2021, CACEIS UK Branch has been operating under the Temporary Permissions Regime (TPR), until the UK Branch has been granted its Third Country Branch licence by the UK regulatory authorities. The business activities with clients of the UK branch remain relatively unchanged under the TPR, subject to some additional temporary UK rules that have been implemented.
CACEIS is hopeful that the UK regulators will approve it's Third-Country Branch application by the end of 2021. In the meantime, the UK Branch will continue to operate under the TPR. Once approved, the UK Branch will be subject to additional UK rules which have been factored into the application and reflect the fact that the home state regulator is no longer leading.
Alongside the Third-Country Branch application, CACEIS has applied for the authorisation of CACEIS UK Trustee and Depositary Services Limited to become a new UK depositary entity. Once authorised, the existing depositary business contracted to CACEIS, UK Branch will move to the new UK Depositary subsidiary. The UK Depositary Application and Third-Country Branch application are aligned and the regulator will assess both applications concurrently.
Sustained client support
In this context of this upheaval for industry players, CACEIS has worked to support its clients whenever necessary. Regular FlashNews updates have informed clients of any change that might impact their operations and then direct them to the staff best able to support them.
Whether it is the Fund Structuring teams working to ensure compliance with the legal documentation of the UCIs of management companies holding UK securities or funds, the “Tax Watch” teams informing and supporting clients about the end of the French dividend exemption at source for UCIs domiciled in the United Kingdom, or the Cash and Banking Services teams depending on changes in the procedures for issuing SEPA credit and direct debits and non-SEPA credit transfers: CACEIS staff has worked very proactively to support our clients’ activities throughout the Brexit and post-Brexit periods.
Staff, especially those in Fund Structuring, have worked hard to inform and support European Economic Area clients, with regards to reporting to the Financial Conduct Authority, in order to benefit from the Temporary Permissions regime and thus to continue their activities in the United Kingdom beyond the transition period ending 31st December 2020.
Public affairs perspective
This collective work has enabled clients to keep pace with the various steps of the United Kingdom’s withdrawal from the European Union and to have reliable, up-to-date information on the latest developments in the negotiations of a partnership agreement between the EU and the United Kingdom.
The involvement of industry associations such as the French Securities Professionals Association (AFTI) in the working groups also provided an opportunity for CACEIS’ Public Affairs department to share the concerns of our EU clients across a variety of topics with these industry specialists.
"This year, the Compliance Observatory led by CACEIS within AFTI addressed the issue of the eligibility of UK securities for Equity Savings Plans (PEAs), their processing by clients’ institutions with such securities on their accounts, and the response of the European and national governments to the issue", says Rodolphe Carissimo, Junior Advisor-Public Affairs at CACEIS.
Earlier this year, the Observatory looked into ISDA - International Swaps and Derivatives Association contracts which were affected by Brexit, highlighting the difficulties in applying UK court decisions within the Community. The publication of a framework contract under French law by ISDA, to supplement the former ISDA contracts governed by Common Law that may be inoperative as a result of Brexit, will solve a large number of difficulties caused by the departure of the United Kingdom from the European Union.
CACEIS’ vigilance regarding the impact of Brexit has also extended to other public consultations of the European Commission. Under the aegis of the Crédit Agricole Group or on its own behalf, CACEIS has ensured that the interactions between future regulations or old-fashioned reforms and Brexit are taken into account when responding to European governments: the emphasis on the risk of circumvention by a third country when responding to the consultation prior to overhauling the AIFM directive, finding the UK’s refusal to implement the settlement discipline in the consultation on overhauling the CSD regulation or the question of maintaining UCITS KIDs for funds registered in the UK that will not apply the changeover to KID PRIIPs like EU Member States at the end of 2021.
For CACEIS, the challenge now is to continue to provide optimal support for its clients in the post-Brexit period that began on 1st January 2021.
"This long-term project will take the form of support for regulatory initiatives aimed at better European financial integration, active participation in the forthcoming consultations on reviewing major standards (MiFID, AIFM, ESG, etc.) and a sustained contribution to the think-tanks and workgroups within Crédit Agricole Group on the development of the union of financial markets across the board: responsible finance, digitisation, post-Covid recovery, internal market resilience, etc.", concludes Eliane Meziani.
On both sides of the Channel, CACEIS will continue its commitment to clients as they further develop their activities and in the necessary adaptations to future changes that will take place both in the United Kingdom and in the European Union.