It has been 1,000 days since the Brexit Referendum result was published, and since then 1,000 branches have appeared in the decision tree leading up to perhaps Britain’s most important week in Parliament. One thing is certain. Brexit no longer seems to mean Brexit...rather Brextension is conditional and depends on the following outcomes:

1. The holding of Meaningful Vote 3 (withdrawn on the evening of March 25 and replaced with holding of indicative votes on March 27) and approval of the UK-EU Withdrawal Agreement by the House of Commons by March 29, 2019 (in which case the extension lasts until May 22, 2019 or until April 12, 2019, if the Withdrawal Agreement is not approved); and
2. An amendment to the UK’s European Union (Withdrawal) Act 2018 to amend the definition of the Exit Date (the EUWA) even though the UK remains a member of the EU during the Exit Day Extension until the revised exit date i.e. either April 12 or May 22).  That being said, on  March 25, 2019 Her Majesty’s Government tabled the European Union (Withdrawal) Act 2018 (Exit Day) (Amendment) Regulations before the House of Commons and House of Lords. This act requires approval from both legislatures to amend UK law where the default exit date remains (at the time of writing) March 29, 2019.  If not approved then the UK could be in technical breach of EU law.

What the EU level instrument of the Exit Day Extension, done by European Council Decision (EU) 2019/476 of March 22, 2019 however does provide is that: 

A. It does not re-open the UK-EU Withdrawal Agreement and expects the UK to provide a clear way forward by April 12, 2019;

B. Any unilateral commitment, statement or other act by the UK should (read must) be compatible with the letter and spirit of the UK-EU Withdrawal Agreement; and

C. It does not give clear guidance as to any other exit date if the UK:

1. Revokes Article 50 (for which it is not clear whether Her Majesty’s Government requires parliamentary approval); or
2. A revised UK-EU Withdrawal Agreement is concluded (at time of writing increasingly unlikely); or
3. The UK and EU agree to a further extension period.

In many ways the confusion in the UK’s House of Commons, and it is not clear whether the indicative votes will actually yield anything, is also starting to spill over into the work of the EU Commission, whose members are also under time pressure, ahead of EU Parliamentary elections, to finalize the bulk of further post-financial crisis regulatory reforms as well as a range of items which give effect to flagship Capital Markets Union (1.0) projects sidetracked because of Brexit. To complicate matters further, the ECB has agreed to self-apply some of this legislation to its own collateral operations that they, and market participants, are waiting on Brussels to finalize.

However, let us put Brexit to the side for a moment. With lackluster economic growth thrown back on the table due to trade wars and the prospect of renewed shocks, concern is rising that the monetary policy toolkit at most central banks is starting to look rusty or broken, with many fearing there’s not enough firepower left to stimulate growth going forward.  Hints that revised or new tools, no helicopters yet, but TLTRO 3 (consensus is a September start) on the horizon, have been mooted as well as discussions on tiered deposit rates.

Moreover, a range of what the ECB has pushed for, including in terms of increased oversight of central counterparties, given their (perceived) risk profile, has been taken away from a potentially expanded EU supervisory mandate. This may be a regrettably shortsighted approach even if the ECB will remain “committed to contribute” to monitor CCPs as central bank of issue for the Euro under current rules of what that role means. This last minute change to reduce a mandate that has been tabled for some time may point to some wider issues.  It does however open the door at least for the finalization of reforms to EMIR, which would be welcome to wider market participants.

Looking beyond Brexit also means looking at the road to replacement rates, where the ECB has now changed the rate formerly known as EUOIR, changed to ESTER to now read “€STR” ahead of its first publication scheduled for October 2, 2019. With EU supervisory authorities still waiting on EU emergency Brexit legislation, the patchwork of national measures remains in different stages of readiness—which we have covered in a revision to earlier coverage on the matter.

As always, we hope you enjoy this month’s edition, and please stay tuned for special coverage and events.