Break­ing ties

The EU is be­ing pressed to end its re­liance on the City of Lon­don af­ter Brexit

The Daily Telegraph - Business - - Front Page - James Crisp

THE EU must wean it­self off its de­pen­dence on the City of Lon­don for ac­cess to cap­i­tal mar­kets and toughen up its fi­nan­cial reg­u­la­tion to pre­vent a race to the bot­tom af­ter Brexit, the Euro­pean Com­mis­sion warned yes­ter­day.

Lon­don is Europe’s big­gest cap­i­tal mar­ket, but Brexit means that the EU’s ma­jor source of non-bank cap­i­tal will be out­side the EU’s reg­u­la­tory frame­work.

Brus­sels fears that could pose a chal­lenge to its abil­i­ties to set rules and reg­u­la­tions in the sec­tor, and is look­ing to break its ad­dic­tion to the City by on­shoring cap­i­tal mar­kets and es­tab­lish­ing new ones on the Con­ti­nent. “This is par­tic­u­larly im­por­tant in light of Brexit, as Europe’s big­gest fi­nan­cial cen­tre is leav­ing the sin­gle mar­ket,” said Valdis Dom­brovskis, an ex­ec­u­tive vi­cepres­i­dent of the Euro­pean Com­mis­sion.

EU ef­forts to im­prove ac­cess to cap­i­tal mar­kets date back to at least 2014 but the Com­mis­sion hopes that Brexit, the eco­nomic hit of coro­n­avirus and the need to fi­nance the “green tran­si­tion” will give it fresh im­pe­tus.

Mr Dom­brovskis ad­mit­ted the EU’s de­pen­dency on fi­nan­cial cen­tres out­side the EU was “one of the rea­sons why we are de­vel­op­ing cap­i­tal mar­kets”. “Brexit has made it more ur­gent – there are spe­cific risks which we are see­ing with so much fi­nan­cial ac­tiv­ity now mov­ing out of the EU,” he said.

The Com­mis­sion has pub­lished an ac­tion plan to build a cap­i­tal mar­kets union, a long-term strat­egy to es­tab­lish large in­te­grated sources of fi­nance for busi­nesses in the bloc.

“Brexit has a sig­nif­i­cant im­pact on the Cap­i­tal Mar­kets Union. It fur­ther strength­ens the need for the EU to have well func­tion­ing and in­te­grated cap­i­tal mar­kets,” the Com­mis­sion said in a com­mu­ni­ca­tion to EU gov­ern­ments.

The EU would have a num­ber of lesser, frag­mented fi­nan­cial cen­tres dot­ted around the bloc af­ter Brexit, rather than a sin­gle dom­i­nant hub in Lon­don, it added. That made it even more im­por­tant to have strong fi­nan­cial su­per­vi­sion at the EU level to pre­vent com­pe­ti­tion from lower stan­dards in Lon­don or else­where in the bloc.

“An en­hanced sin­gle rule book and ef­fec­tive su­per­vi­sion will be cru­cial to pre­vent reg­u­la­tory ar­bi­trage, fo­rum shop­ping and a race to the su­per­vi­sory bot­tom,” the Com­mis­sion said.

Sir Jonathan Faull was the top EU civil ser­vant on fi­nan­cial ser­vices reg­u­la­tion and the most se­nior Bri­tish of­fi­cial in the Com­mis­sion. He over­saw work on the Cap­i­tal Mar­kets Union. He told The Daily Tele­graph: “It’s not all or noth­ing. The EU can­not and will not ‘shut out’ the City, but the re­la­tion­ship will be dif­fer­ent as Brexit takes hold, reg­u­la­tion and su­per­vi­sion di­verge and in­ter­na­tional de­vel­op­ments are ne­go­ti­ated and im­ple­mented dif­fer­ently.”

Sir Jonathan, who is now chair­man of Euro­pean pub­lic af­fairs at the Brunswick Group, said UK-EU links re­mained deep and both sides faced sim­i­lar chal­lenges. He said the re­la­tion­ship “could set­tle down to a sta­ble mix­ture of com­pe­ti­tion, co-op­er­a­tion and man­age­ment of dif­fer­ences”.

The EU has al­ready be­gun the process of bol­ster­ing its fi­nan­cial reg­u­la­tors ahead of the end of the tran­si­tion pe­riod on Dec 31. Pol­i­cy­mak­ers face a bal­anc­ing act be­tween not shut­ting down EU busi­nesses’ ac­cess to cap­i­tal in Lon­don but keep­ing reg­u­la­tory con­trol. Lon­don and New York are far larger in the sec­tor and could carry more heft in set­ting rules and reg­u­la­tions.

The UK will also have to weigh up how far to di­verge from EU stan­dards be­cause it could risk los­ing ac­cess to the sin­gle mar­ket.

Af­ter the end of the Brexit tran­si­tion pe­riod, UK fi­nan­cial ser­vices’ ac­cess will be gov­erned by equiv­a­lence – a sys­tem of reg­u­la­tory recog­ni­tion that can be with­drawn uni­lat­er­ally by the Com­mis­sion at as lit­tle as 30 days’ no­tice.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.