Regulation

Quite rightly, there are veritable storms in capital markets conferences and the press about what needs to be done to prepare for MiFID II, due to take effect in 4+ months. There seems to be little chance for a further stay of execution, but then, with remarkable irony, MiFID I hit securities trading in November 2007 as the Global Financial Crisis was deepening, leading to the most massive destruction of capital in decades, and so undermining large swathes of the world economy. Regulators cannot time such matters, and the preparation of reforms based on broad public consultations and multiple drafts takes years. Still, we are where we are: perhaps some sort of progressive implementation would be sensible. If the authorities are certain of the value of their objectives, then surely it would be worth demonstrating some flexibility.

Thomas Murray was founded 24 years ago to assure that investors’ property is respected by custodian banks. This was a time when institutional portfolios were spreading investments across multiple jurisdictions, a trend that has accelerated over this past quarter century. The firm’s remit widened to cover the spectrum of post-trade services, always with the same focus on investors’ safety and rights. Shareholder rights are, in fact, central to the financial system, and so also the key focus of Thomas Murray’s work.

Shareholder rights are a critical economic concern: when the members of the public are asked to hand over hard-earned savings as an investment in a corporation, whether in a stock or a bond or another financial instrument, the managers of that enterprise have an immediate obligation to handle that money fairly and honestly. Without trust in proper conduct by those managers in growing the enterprise such that value is created, we will not have the investment or capital formation (or jobs, or goods and services!) that our societies need.

On 28 November 2016, we managers at Thomas Murray were concerned to see the publication of:

COM(2016) 856 final 2016/0365 (COD)

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, and (EU) 2015/2365

We understand that this is a first legislative draft, and write in the hope that it will be very significantly amended.

Beginning in August, Thomas Murray Data Services began to post a short series of thought pieces not about what Brexit would look like, which to our minds remains unknowable; but instead about the kinds of questions the firm will be asking itself.

This posting is the last of the five-part series.

This is the fourth in a series of five thought pieces Thomas Murray wishes to share with clients this summer, the questions for our fields of expertise before the amorphous Brexit project takes shape.

In response to the 2007-2009 financial markets crises, and in line with G20 direction on restoring global economic growth, a primary objective of the European Commission was to shore up gaps in capital markets regulation wherever they were to be found.   As regards custody, the partially overlapping segments of central securities depositories and custody banks have been subject to colliding regulatory purposes and often contradictory official projects – if confusing, this is somewhat understandable given that the two domains fall between capital market and banking legislation/regulation, each subject area with its own points of view.  This still needs sorting out, and that clarification of duties and compliance will take place in the near background whilst the British exit from the EU is defined and executed.

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