Brexit's Unintended Consequences Could Include Mifid III

Sweeping changes to Europe’s trading rulebook, which came into force in January 2018, may have to be revised again soon after the UK leaves the European Union, according to one key lawmaker.

During a keynote speech at the Fixed Income Leader’s Summit in Amsterdam on November 8, Kay Swinburne, a Welsh Member of the European Parliament (MEP), said that the political environment surrounding Brexit would undoubtedly influence the regulatory environment in Europe moving forward. This would heavily impact any further revisions of the Markets in Financial Instruments Directive (Mifid), which she described as “a reality.”

Brexit, she said, is “the single biggest driver right now” for continued alterations to the revised Markets in Financial Instruments Directive, known as Mifid II. Indeed, these changes may be so fundamental that it may result in a third iteration of the rules package.

“When you think of the effects of Brexit and what it could have on Mifid, I truly think post-Brexit, it will be the EU27 that is most likely to move away in piecemeal fashion from Mifid II to a greater extent than the UK would ever think of,” she said.

Swinburne, who is also the vice chair of the influential Committee on Economic and Monetary Affairs in the European Parliament, was one of the key sponsors of Mifid II during its passage through the legislative chambers of the EU. However, she said, key changes are already beginning to take place “behind closed doors” that may redefine Mifid II as the industry knows it.

One example of this is the investment firm review, which has the potential to fundamentally redefine such entities under European law. Other changes could stem from what she described as the “failures” of certain technical standards governing best execution and reporting.

While all EU regulations have a baked-in review clause, in which the performance of the rules is assessed up to five years after enactment and the file can be reopened to make changes—such as the process currently underway with the review of the European Market Infrastructure Regulation—Swinburne expressed concern that politics would have an undue influence on this process when it comes to Mifid II.

 “Even though I am a politician, I actually take no pleasure in bringing politics into financial legislation and I firmly believe that a review of any highly technical dossier, anything like Mifid II, should be kept at a distance from serious political influence,” said Swinburne. “But I am afraid that it is a reflection of the reality that I have seen in Brussels over the last few months, it would be foolish to consider future regulatory change without considering the political drivers that are there right now.”