In the commercial maritime world it’s easy to forget the important role that government can play in our business lives. We’re not working on the technical side of the business, so what does it matter to us? Actually, quite a lot. I’m not just talking about taxation, transport infrastructure or defence. Currently issues that matter to shipbrokers and charterers, owners and operators are being considered at a UK and European level and there is an opportunity for Baltic Exchange members to influence these policies.
There are currently two separate issues under the spotlight: one very positive and the other a potential threat.
On the positive side, the UK government has launched a consultation taking views from the industry as to how to ensure that the British maritime sector can remain a world-beater.
On the negative side, draft rules are being prepared by the European Securities and Markets Authority (EMSA) that may cause a commodity trading houses and shipping companies to fall into regulation as financial entities on the basis of their use of derivatives.
The UK Maritime Growth Study is currently taking soundings from across the maritime industry with a view to enabling the UK government to provide a strategy that will help the sector thrive. The maritime industry has been defined in a very broad sense and includes marine equipment manufacturers, ports, shipping companies, professional maritime service providers. The study group is chaired by Baltic member Jeffrey Evans of Clarksons who is also Chairman of Maritime UK.
As Jeff writes in the forward to the Call for Evidence paper:
“We cannot rely on our history to keep the UK at the top of an increasingly competitive field in the future, we need to put ourselves in the best condition possible to compete successfully with other maritime centres. I believe this study is vital to the health of the UK maritime sector and the effectiveness of the study will be determined by the strength of its evidence base.”
The Baltic will be submitting a paper and members are requested to send views and contributions to the Baltic via firstname.lastname@example.org.
The UK government will also welcome direct contributions from members within and outside the UK via www.gov.uk/government/consultations/maritime-growth-study-call-for-evidence
Once completed the study will provide a set of recommendations to the new UK government later this summer. This is a great opportunity for Baltic Exchange members to help shape a strong policy.
The second area is less positive. ESMA (European Securities and Markets Authority) has proposals under MiFID II/MiFIR for significant expansion in financial regulation that will impact the commodity derivatives market, which includes FFAs. ESMA is empowered by MiFID II/MiFIR to propose and implement regulatory standards regarding how the legislation (which was passed last year) takes effect. These rules are now in draft and there is an opportunity to comment on the drafting.
The current draft has the effect that a company whose derivative activity exceeds 5% of total group company capital, or if the trading volume of that company represents more than 0.5% of the volume in a specific category of derivative (where freight is arguably more or less a category on its own), then it will become a financial firm and subject to full regulation. There is therefore a real risk that as currently drafted the rules would have an impact on a large proportion of companies trading freight derivatives.
While there are carve-outs for hedging activity, it will be difficult for firms to ensure that they can use these exclusions.
We strongly encourage members to respond to the Consultation Paper, which can be found at www.esma.europa.eu/system/files/2014-1570_cp_mifid_ii.pdf.