Capital Markets – Top 5 Issues (23 Dec 2020)

  1. Requirement for Irish issuers to migrate to a new settlement system – At present, shares in Irish listed companies that are held in dematerialised form and traded in Dublin or London are settled through the CREST system operated by Euroclear UK & Ireland Limited ("EUI"), which acts as the required central securities depositary ("CSD") for such companies under applicable EU securities regulations.  Brexit will result in EUI ceasing to be an authorised CSD under these regulations (as EUI is a UK company) and Irish issuers currently using the CREST system will therefore need to migrate to a new CSD system.  The settlement system operated by Euroclear Bank has been selected as the replacement for CREST and a statutory process to allow companies to migrate to the new system has been established in consultation with a working group of Irish law firms (including William Fry).  This process will require several steps to be taken by Irish issuers, including obtaining shareholder approval for the migration and the required changes to the company's articles of association to accommodate the new system.  Provided these steps are taken companies will migrate to the new system automatically in March 2021 (until which time EUI has been approved by the European Commission to act as a 'third country CSD' on a temporary basis).  The CSD model operated by Euroclear Bank is structurally different to CREST and will result in all of the shares previously held in CREST being held by a nominee of Euroclear Bank, Euroclear Nominees Limited, who will hold these on trust for the underlying investors and issue them with contractual rights (governed by Belgian law) representing those shares.  This new structure and its implications for investor procedures will require careful explanation by issuers in conjunction with their advisers.
  2. Risk of increased costs for prospectus approval - At present, while the UK remains in a transition period following its withdrawal from the EU on 31 January 2020 (currently expected to end at 11pm on 31 December 2020) the UK is part of the EU regulatory regime which allows the passporting of prospectuses between EU Member States. On the expiry of such transition period, the UK will no longer be able to avail of this regime, meaning that unless alternative regulatory arrangements are put in place, Irish companies wishing to list in the UK would have to obtain a separate approval from the UK regulator. Similarly, UK companies seeking to list in EU Member States may be required to obtain approval from the competent authority in each EU Member State in which they intend to list. This would significantly increase the administrative burden and costs associated with prospectus approval in those transactions and would potentially delay the raising of capital.
  3. Impact on transaction timetables - Volatility in financial markets when the UK's transition period ends, and potential uncertainty as to the application of the post-Brexit regulatory landscape at that point, may lead to parties delaying transactions in the months immediately following the end of the transition period. Conversely, this may mean companies looking to push transactions through in Q4 2020 while the status quo applies, subject to other market conditions at that time.
  4. Risk of lack of access for Irish corporates to capital from the UK - Irish corporates often enter into capital market transactions with UK based investment banks and other investors in order to obtain finance. Their ability to enter into such transactions may be impacted by Brexit and it could become harder to access these alternative sources of finance to bank lending if the UK and the EU fail to reach an agreement on their future trading relationship which covers the provision of such financial services after the end of the UK's transition period.
  5. Impact on Capital Markets Union - The most significant EU regulatory project initiated prior to the UK's Brexit vote was the Capital Markets Union ("CMU"), which promotes diversification of funding sources for the EU economy and a reduction in dependence on traditional bank lending. Following the Brexit vote, there was concern that these efforts could be undermined, given that the UK has been an important advocate of the proposed reforms. While progress has been made in a number of areas, such as the implementation of the new prospectus regime (see here) other areas of proposed reforms, such as in relation to the European Securities Markets Authority and other European supervisory authorities, have not progressed at the same rate,  There have however been recent calls from Member States, including Ireland, to accelerate the outstanding areas of the CMU project as this is seen as a means of protecting the EU's markets from the headwinds that Brexit may create.  This renewed impetus may gather further speed once the UK's transition period ends. 


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Mark Talbot

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+353 1 639 5162


Brian Butterwick

Email Brian
+44 20 7571 0497