As Europe returned from a busy summer to a September full of policy speeches, summits and schedules, all of which sought to set the tone for the EU, financial markets and further completion of the Single Market, Brexit talks broke down in a dramatic fashion of what is being termed on one side of the Channel as the "Salzburg Showdown," and on the other as a more forcible yet required rejection of the UK's Chequers Proposal. As mentioned in August, the next hurdle to moving past a No Deal Brexit Scenario is now November and possibly a last-ditch effort in December 2018.

What this means for firms is that their existing Brexit-proofing elements, most of which have looked at legal entity structuring, now increasingly also need to address concretely the contractual continuity challenges and repapering exercises.  Those repapering exercises may also want to (and the ECB-SSM has suggested that firms ought to) begin to address transitions to IBOR replacement rates, increased margining and improved internal model governance. All of this is important given 2019 supervisory cycle and the ECB-SSM's own publication of findings on shortcomings and new rules on model governance, onsite inspections and license applications.

These priorities are very much in addition to the supervisory scrutiny from the Supervisory Principles on Relocations and the focus on policies. Add to this an extension of ESMA's new "temporary" product intervention powers and the EU's State of the Union announcements regarding a further expansion of EU Anti-Money Laundering Legislation, and one has further priorities for the remainder of 2018 and 2019.

Then there are the "game changer" developments, chief amongst which is the EU Parliament's ECON Committee's approval of the regulatory proposals to adopt a new prudential regime for MiFID Investment Firms (see our on-going analysis on this). This has been advanced fairly quietly in terms of its progress through the legislative process. In summary, this development categorizes MiFID Investment Firms into three tiers and introduces a differing manner of calculating regulatory capital and many firms may need more capital. For those that are found to undertake "bank-like activity" (park the problem of that being an undefined term for a moment) they will be regulated and supervised like CRR/CRD IV credit institutions. That in turn opens the door for the ECB-SSM to supervise a wider range of firms. Equally the ECB has also begun to speak of "on-shore" versus "off-shore" capabilities instead of looking at home/host state mandates in terms of subsidiaries versus branches (including third-country firms), marks a considerable cultural shift in Europe's "Super-Supervisor".

We hope you enjoy this month's edition. Please stay tuned for further special features including our Financial Regulatory Outlook for 2019 as well as the launch of our new monthly "Global Regulatory Review" in October.

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