Europe has voted. 751 MEPs will now be taking their seats. The new Commission is in the process of being formed despite some spats on the Spitzenkandidat process including between the European Parliament and the Consilium – the two legislative fora in the EU. For an overview of the immediate political process and what it means for financial services please see our recent Client Alert that was published ahead of the elections here.

While the incumbent political party groupings, EPP and the S&D, fared poorly, losing votes to a wave of Green voters and the liberal ALDE alliance, the surge in right-wing or populist parties did not materialize – despite Nigel Farage’s Brexit Party having roughly the same amount of seats as Angela Merkel’s CDU/CSU. Even with the European Parliament elections having given way to a fall in various national governments, snap elections, further Italian instability and possibly a multi-billion euro fine for deficits as well as the end of May in the UK and the return of the No Deal Brexit along chaotic lines, this 2019-2024 period ahead presents opportunity.

While it may not be “peak populism” as of yet, but the shift away from a bi-party system that has shaped the European Parliament since the first direct elections in 1979 to a  much more representative and mature parliament is welcome along with average voter turnout at its highest level in a quarter of a century. This change may be reflected in a very new and certainly more fragmented alliance of interests needing to be secured by the new Commission President to secure an absolute majority (376 parliamentary seats). With pro-EU parties holding ca. two-thirds of seats that may seem easy but this figure does not account for some of the UK or other “wild-card” members. Moreover, not all of those in any future alliance are as inclined to be supportive of financial services and/or pragmatic reforms.

Brexit’s impacts on MiFIR have also been back in the news. This time the climb-down by ESMA on the Art. 23 MiFIR share trading obligation (STO) that was largely seen, including in legislative policymaker and not just market participant circles, as unworkable and detrimental for investors, has still left a tension between EU and UK financial supervisors that also highlight differing views and approaches to financial regulation once the divorce is over.

Even if ESMA has, in its May, 29 public statement, committed itself to, when applying the EU-27’s STO requirements to look beyond just the “nationality” of the ISIN code but how to minimize disruption. In summary, ESMA will not apply the EU-27 STO to 14 shares with a Great Britain ISIN prefix. EU-27 investors can still trade the likes of Vodafone in a much more liquid London market for that share than having, as the EU-27 STO would require, to trade it in Berlin. That does not leave a range of EU issuers on the London market with much relief. ESMA’s statement, which it plans to revisit within 12 months, reiterates that all shares with ISINs from EU-27 Member states but also Iceland, Liechtenstein and Norway are within the scope of the EU-27 STO. Part of that statement may be aimed at the Swiss, where share trading access and the topic of “equivalence”, something the UK also wants, is part of complex renegotiations of ca. 100 bilateral treaties that is becoming a proxy on Brexit in its own right.

Meanwhile the ECB has dusted off some old plans to build a European mechanism for the issuance and initial distribution of debt securities in the European Union (known by the affable acronym EDDI). It is hoped that EDDI could prove a catalyst both for what is expected to be a revitalized Capital Markets Union 2.0 as well as delivery on the Eurozone Safe Asset project “Sovereign Bond Backed Securities” (SBBS) that may get another rebrand to make them more acceptable to some corners of critique. EDDI may also prove a good solution to assist financialization in Banking Union candidates such as Bulgaria, who is already in the process, or Croatia, whose national central bank following the European Parliament election sent a formal ECB request to commence talks on close-cooperation.

We hope you enjoy this month’s edition and also this quarter’s edition of the Global Regulatory Review. Please stay tuned to our Eurozone Hub for further periodic updates, including thematic deep dives on developments from European and national authorities that are likely to have considerable “change the business” but also “change the compliance” impacts.