The Cat Is Out Of The Bag: The EU Bars UK Financial Outsourcing

A key EU financial authority has asked EU regulators to be strict on UK firms seeking to escape the impact of Brexit. The concern is that having lost their EU passporting rights, desperate Brits will try to get authorised in Europe but continue to rely on UK managers and operations. 

"UK-based market participants may seek to relocate entities, activities or functions to the EU27 in order to maintain access to EU financial markets. In this context, these market participants may seek to minimise the transfer of the effective performance of those activities or functions in the EU27, i.e. by relying on the outsourcing or delegation of certain activities or functions to UK-based entities, including affiliates. It is therefore necessary to ensure that the conditions for authorisation as well as for outsourcing and delegation do not generate supervisory arbitrage risks."

ESMA even proposes a Cat o' nine tails set of 9 "principles" to prevent UK firms making the best of Brexit: 

1. No automatic recognition of existing financial firm authorisations;
2. Authorisation processes by the EU27 should be "rigorous and efficient";
3. Regulators must verify the objective reasons for relocation;
4. Regulators should avoid "letterbox" entities in the EU27 - the EU firm must perform substantial activities;
5. Outsourcing and delegation to third countries (like the UK) is only possible under strict conditions;
6. Substantive decision-making must occur in the EU, especially over outsourced activities;
7. There must be sound local governance of EU entities, by resident directors/senior managers;
8. Regulators must have the resources and data to effectively supervise and enforce EU law. 
9. ESMA is watching and will co-ordinate to ensure adequate and consistent supervision. 

Of course, the UK could retaliate with red tape of its own. Brexit is also a challenge for 8,008 EEA firms that hold 23,532 passports (about 3 each) to cover their UK offerings.

The Official Monster Raving Loony Party Is Too Normal

The OMRLP is short of candidates. Only 12 Loonies have been nominated for GE2017, the fewest since 1987. The problem is that nothing seems whacky anymore. Satire and irony are dead. There’s no competing with the idiocy of the major party manifestos, as the party political machines inhale more and more data from a population hooked on the Daily Mail.

"Shit in, shit out," as a data scientist might say, if quotes from such 'experts' were allowed.

But they're not, which is how Trump got to the White House and why Theresa May was there to sort of hold his hand. 

The "truth" is that the OMRLP could romp home in this election. It just needs to become truly loony. Here are some genuinely ‘strong and stable’ foundations on which to build: 

• Every university that accepts UK government funding must offer Creationism as a degree course, and as a compulsory module in Archaeology, Anthropology, Education, Geography, Geology, History, Medicine, Physics, Theology and Veterinary Science;

• The UK government should endow a new Flat Earth Geographical Society;

• All aircraft flying into or from the UK should be fitted with a ChemTrail monitor to measure the quantity of mind-control chemicals they are adding to the atmosphere (ignore these people);

• All academic research grants should be awarded by a simply voting majority of all the UK's local councillors.

Of course, the OMRLP must also recognise that it is competing with the sheer mendacity of mainstream politicians. It should therefore utterly fail to deliver on any of these cast iron commitments. This will inspire hope that they'll manage it next time, and guarantee progressively more electoral success at GE2018, GE2019, GE2020...

The Long, Slow Death of UK Party Politics

Every day brings a new low as the UK's political 'leaders' scrape the bottom of the pork barrel for yet another populist gimmick to distract voters from the litter of broken promises and the stench of rotting bureaucracies. While covering the 1972 Presidential campaign, Hunter S. Thompson wrote:

“The main problem in any democracy is that crowd-pleasers are generally brainless swine who can go out on a stage and whup their supporters into an orgiastic frenzy—then go back to the office and sell every one of the poor bastards down the tube for a nickel apiece.” Fear and Loathing on the Campaign Trail '72

He must be howling in his grave.

At some point, you might think, the vast majority of their supporters will see that the Tory-led Brexit is a road to nowhere, or that the UK cannot possibly finance Labour's latest manifesto anymore than it could in the 1970s. The centre ground will re-open to any political party desperate enough to seize it. Politics will be about solving the root causes of genuine problems, rather than dogma and dog whistles for the nostalgic party faithful.

But any such moments of truth are a long way off, and by then the surrounding alternatives will be so bad that voters will have lost all perspective, anyway.

UK politics and its beleaguered public services will have to descend into total chaos before there'll be any meaningful change.

EU Looks To CrowdInvesting To Plug Post-Brexit SME Capital Gap

The European Securities and Markets Authority (ESMA) has responded to an EU consultation on capital markets with a plea for the European Commission to focus on small businesses and investment-based crowdfunding; as well as more joined up regulatory supervision and more efficient collection of financial reporting data.

Recommendations include lighter information and reporting requirements for SMEs seeking to raise money; and EU regulation of crowd-investing to enable cross-border funding on a consistent basis.

ESMA says that only 10 of the 28 current EU member states reported the existence of regulated investment-based crowdfunding (in debt securities and equities/shares) in their territory - 99 platforms (up from 46 in 2014), of which 30 are based in the UK (up from 26 in 2014). France (23), Italy (17) and Germany (13) are fast followers. Only 12 platforms use a passport - based in either the UK or Finland (which has a total of 5 platforms). 

The various platforms are listed in the Appendix to the ESMA response. There is also a high level comparison of the various differences in terms of initial capital requirements; instruments and structures; remuneration models/levels and how these align with the interests of fundraisers/investors.

Volumes are not mentioned, but given that over half the platforms in 2014 were based in the UK, then it's likely they are still responsible for most of the volume. And the fact that ESMA bothers to push the sector at all suggests that those volumes are significant.

So this focus is not only an admission that Brexit creates a big and important capital-raising gap to fill, but it's also a big endorsement of the UK crowd-investment sector.  

The Great Reform Bill: #Brexit Stitch-Up Begins

Brexiteers moaned that the EU gave us too much red tape, and promised there would be less of it.

Now they introduce the deceptively titled "Great Reform Bill" which simply translates all the red tape into UK law. 

This 'gold-plating' is precisely how the UK has created a rod for its own back for decades.  In fact, it's busy doing the same thing with the new Payment Services Directive (PSD2).

EU courts do not intepret the law to the letter. They consider a law's purpose when applying it. 

But UK courts interpret UK law to the letter. 

UK courts are entitled to take a purposive interpretation to EU law, but tend not to do so once the EU law has been absorbed into UK law.  

So, the UK will actually have a worse form of red tape after Brexit than it does as an EU member.