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Regulation

U.K. investors will lose EU market access in no-deal Brexit – ESMA chief

Steven Maijoor, chairman of the European Securities and Markets Authority

A no-deal Brexit will result in U.K. market participants losing their rights — known as passports — to access the European Union market, according to Steven Maijoor, chairman of the European Securities Markets Authority.

In a speech Wednesday at the European Financial Forum in Dublin, Mr. Maijoor also warned that under Markets in Financial Instruments Directive II investment firms are allowed to trade shares only on EU exchanges and foreign exchanges recognized as equivalent by the European Commission. "To date no such equivalence decision exists for the U.K.," he said, according to a copy of the speech posted on the ESMA website.

The speech follows a U.K. Financial Conduct Authority call earlier this month for financial services firms to plan for a no-deal Brexit in areas where it would not be appropriate for the U.K. regulator to offer temporary permissions, such as with MiFID II.

Mr. Maijoor also said ESMA will stop collecting data from U.K. firms for MiFID II reporting in the event of no-deal Brexit, and ESMA will gradually phase out U.K. data 12 months after the U.K.'s official exit day, March 29.

"(But) for the double volume cap (designed to limit dark-pool trading in equity investments) this means that U.K. data will remain part of ESMA's calculations for a period of 12 months, but its impact will gradually decrease as time passes." Mr. Maijoor said in the speech. "We are aware that this is not a perfect solution, but we believe it is the least disruptive and most certain for the market in a situation which does not allow for perfect solutions."

Mr. Maijoor also warned that a lack of a deal could lead to altering the tick size of trading venues if the main pool of liquidity is located outside of the EU. A tick size that's too small distorts price information for market participants.

Mr. Maijoor called on market participants, regulators and governments to "minimize the risks of regulatory arbitrage as a result of relocations from the U.K. to the (remaining 27 EU countries)."

"We intend to provide more clarity on this matter sufficiently ahead of Brexit date (on March 29)," Mr. Maijoor said.