Sun. Jul 21st, 2019

Morgan Stanley, Nomura and Citi defend themselves against a tough Brexit with new subsidiaries for Spain | Markets

Morgan Stanley, Nomura and Citi defend themselves against a tough Brexit with new subsidiaries for Spain | Markets

The main heavyweights of the world finances move file before the possibility of an imminent Brexit without agreement. If London and Brussels do not reach a last-minute agreement or the Government of Theresa May fails to extend the deadline to the European Union, on the 29th of this month of March the United Kingdom will leave the community club with a long list of unresolved issues . For now, the British Executive will request an extension until June 30 only if the Parliament gives the green light to the agreement this Wednesday, March 20.

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One of the most serious problems in the financial horizon is that funds and investment banks based in London can continue to operate in Spain, and in the rest of the Union, normally.

A firm that has its headquarters in the EU can use the community passport to act in Spain. This authorizes you to operate in any other European country. In the Spanish case, the law specifies that the CNMV must receive a communication from the competent authority of the member state of origin.

The formula works since 1993, and the first edition of the Mifid directive of 2007 simplified European operations to the maximum. Thus, the intermediary can operate directly from its offices in another European country or open a branch that depends on its head office in the EU.

Alert on the shares traded in London and other exchanges, such as IAG

Restrictions in the 'dual listing'. One of the additional dangers to the passports of the intermediaries that give access to the markets (the British in the EU Stock Exchanges, and vice versa) is in the capacity to buy shares that are listed on the British Stock Exchange and also listed on another EU country (dual listing, in the jargon). This is the case with Ryanair, which is also traded in Dublin, with Royal Dutch Shell and Unilever, both in Amsterdam, or IAG, which is on the Spanish Stock Exchange as well as the British one.

The Mifid 2 directive it would prevent intermediaries or investment funds under this regulation from buying those securities in London - they would have to do so in the markets of an EU country - unless their stock exchange is evaluated as being from a third country with equivalent regulations. This is already the case with the Australian Stock Exchange, the New York Stock Exchange, the Nasdaq and the Hong Kong market. The London Stock Exchange (LSE) ensures that the UK has already adopted Mifid 2 and that it will remain in force after Brexit, no matter how hard it is. But LSE warns that they have not yet received official notification of that declaration of equivalence.

That prebend, unless otherwise agreed, will be canceled with a hard Brexit. Until now, Morgan Stanley, Citi and Nomura operated in Spain with a subsidiary branch of a subsidiary located in the City of London. But, in case the United Kingdom leaves the Union by the braves, the safe-conduct will lose its validity and those branches would lack the power to operate.

The president of the CNMV, Sebastián Albella, was limited in the presentation of the last plan of activities of the supervisor, on 25 February. He explained that the effectiveness of EU passports between the United Kingdom and the EU countries would decline.

Thus, these three investment banks have established new subsidiaries with headquarters in Frankfurt or Dublin, from which, yes or yes, they can operate in the EU without the United Kingdom. Then, they have proceeded to open new branches in Spain that now depend on Germany or Ireland, according to the records of the CNMV.

An example is that of Nomura. The Japanese bank operated until now in Spain through a branch of its London-based subsidiary Nomura International. In June of last year, it issued a statement announcing the opening of a Frankfurt-based company, Nomura Financial Product, after obtaining the approval of the German market supervisor, BaFin. "Nomura's plans are advanced and the license is a big step to ensure that all of our current customers have smooth access to Nomura's products and services after the UK's departure from the European Union," the statement said.

This German company was authorized last October to operate in Spain. And on March 8 it registered its new Spanish branch in the CNMV. Morgan Stanley has used its Irish subsidiary Morgan Stanley Investment Management, based in Dublin, to register its branch in Spain, also on March 8.

Citi, meanwhile, has registered since February 22 its branch in the country through its German subsidiary Citigroup Global Markets Europe. Large fund managers, such as BlackRock or Pimco, have used similar strategies.

All in all, the coordinator of European market supervisors, ESMA, is looking for a solution so that all British intermediaries can operate on the European Stock Exchanges in case of a hard Brexit. But there is a risk that this solution will not come.

British Bull

Meanwhile, the British supervisor, the FCA, It has launched an initiative to alleviate the effects that the operations of licensed brokers in EU countries would be blocked in London. "The temporary permit regime will allow European firms operating in the United Kingdom with a passport to continue their business (...) for a limited period while they obtain full authorization from the FCA if the UK leaves the EU without an agreement", points in a document. The signatures can request this bull until March 28 included.

Of course, the FCA recommends to all the companies that create a British subsidiary to ensure that they can operate there or urges them to create it in one of the jurisdictions in which they can be part of the market, such as Australia, Dubai, Hong Kong, Israel or Switzerland.


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