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EU's MiFID Deal on Swiss Exchanges Sends Signal for Brexit

(Bloomberg) -- As U.K. Prime Minister Theresa May tries to get financial services into the frame of a trade deal with the European Union, she might want to study the EU’s decision on market access for Swiss stock exchanges under MiFID II.

The European Commission, which is running the EU side of the Brexit talks, tied a financial-plumbing issue -- the ability of EU investment firms to trade on platforms such as SIX Swiss Exchange AG -- to broader political issues. Swiss platforms got a year of access to the single market, not the open-ended deal given to U.S. exchanges, so the issue can be revisited in wider talks on the country’s relationship with the EU.

The EU’s chief Brexit negotiator, Michel Barnier, said this week that financial services couldn’t be included in a trade agreement. May countered that there would be a “greater recognition of the role the City plays in the financial provisions for Europe as a whole” as the negotiations proceed. Yet whether or not the trade talks extend to finance, the EU may use market access for U.K. banks and insurers as leverage on other issues, as it did with Switzerland.

“That’s what they do with smaller states, and that’s what they will do to Britain as well,” said Karel Lannoo, head of the Centre for European Policy Studies in Brussels. “We’ve seen it in the negotiations. You will continue to pay as long as you’re a member of the single market, even if you have politically nothing to say.”

‘Sufficient Progress’

In announcing the Swiss decision on Thursday, Valdis Dombrovskis, the EU commissioner in charge of financial-services policy, said the access arrangement is “limited to one year, and can be extended provided there is sufficient progress on a common institutional framework.”

Switzerland and the EU are currently in the process of negotiating a new “institutional framework,” which covers issues such as dispute settlement, the supervision of bilateral agreements and how to adjust to new legal developments, according to the Swiss Foreign Ministry. The EU is also seeking a Swiss contribution to development in the bloc’s eastern states to the tune of 1.3 billion Swiss francs ($1.3 billion).

The commission’s equivalence decision under the revised Markets in Financial Instruments Directive is based on the determination that oversight in Switzerland is as robust as that in the EU. It means EU investment firms can continue to trade on platforms in the country. Under MiFID II, which kicks in on Jan. 3, if a stock is traded on an EU-regulated platform, the bloc’s investment firms must do all their transactions there or on a foreign venue deemed equivalent.

‘Immediate impact’

In explaining the time-limited equivalence finding, the commission said trading of Swiss shares in the EU is “more widespread” than with the U.S. or Hong Kong, so trading in Switzerland has a “bigger and more immediate impact on the integrity of EU financial markets.” It also noted the “far closer commercial ties binding the EU and Switzerland.”

Limiting this equivalence finding to one year didn’t sit well with Swiss President Doris Leuthard, who described it as a “clear case of discrimination” that risked “harming bilateral relations on other important dossiers.” The Swiss government has the impression that this decision is “intended to weaken Switzerland’s financial sector,” she said.

European Commission officials said the recognition of equivalence isn’t a right that can be claimed by non-EU countries. In the Swiss case, the ongoing political negotiations justified making market access for financial-services firms conditional on broader progress, the officials said, asking not to be identified in line with protocol.

That’s important for the U.K. to keep in mind, because if financial services are included in the trade talks, single-market access for clearinghouses, exchanges, broker-dealers and other firms would be thrown into the grand give-and-take along with the automotive industry, agriculture and aerospace. Even if they’re not, U.K. demands for market access could be used to influence other matters.

The commission initially decided on open-ended equivalence for the Swiss exchanges, then changed its mind as progress in the broader talks with Switzerland slowed, the officials said. All of the EU’s member states endorsed the one-year deal apart from one, which abstained: the U.K., according to a person with knowledge of the vote.

(Adds detail from commission decision in eighth paragraph.)

--With assistance from Catherine Bosley

To contact the reporter on this story: Alexander Weber in Brussels at

To contact the editors responsible for this story: Patrick Henry at, Boris Groendahl

©2017 Bloomberg L.P.

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