Investment banks in Britain would have to stick closely to EU rules on issues such as bonus caps after Brexit, under proposals the European Commission is set to make on Wednesday.<\/p>\n
The commission is planning tougher scrutiny of financial centres outside the EU that offer services to European clients, even as it insists that financial services will not be included in a Brexit trade deal with the UK.<\/p>\n
Under such a scenario, the access to the EU market enjoyed by Britain\u2019s financial services industry \u2014 home to about half the EU\u2019s 6,000 investment companies \u2014 would be determined by whether the commission deems UK rules to be \u201cequivalent\u201d to EU standards, rather than by rights set out in a treaty.<\/p>\n
Wednesday\u2019s draft legislation, which will need to be approved by EU states, would introduce a more rigorous and intrusive approach to vetting equivalence for brokerages and investment banks outside the EU \u2014 largely because of Brexit.<\/p>\n
A draft of the plans, seen by the Financial Times, says that there is a \u201cneed to update the regulatory architecture in the EU\u201d to address the \u201cpivotal role played by UK investment firms in this area to date [and] the decision of the UK to withdraw from the Union\u201d.<\/p>\n
People briefed on the plans said they would mean that the UK would need to stay in close regulatory harmony with the EU if it was to benefit from the access provisions, not least because the commission has the power to withdraw equivalent status at any time.<\/p>\n
Respect for rules on banker pay, notably the EU\u2019s ban on bonuses of more than twice fixed salary, will be one factor that is sure to be taken into account in Brussels\u2019 assessments, the people said.<\/p>\n
Michel Barnier, the EU\u2019s top negotiator, also maintains that the alternative route of preserving financial services access for the UK through provisions in a trade deal is not an option.<\/p>\n
\u201cThere is not a single trade agreement that is open to financial services. It doesn\u2019t exist,\u201d he told The Guardian and other European newspapers.<\/p>\n
By contrast, David Davis, Britain\u2019s Brexit negotiator, has called for the future deal to include a strong services component, while The CityUK, the City of London\u2019s principal lobbying group, said on Tuesday that \u201cjust because financial services have not been encompassed in free trade agreements to date is no reason to dismiss them from a future UK\/EU free trade agreement\u201d.<\/p>\n
Some Brexiters, particularly in the City, have long argued that leaving the EU would allow the UK to junk regulations deemed to be holding the financial centre back \u2014 particularly the bonus cap, which was bitterly opposed by the UK government when it was agreed by governments in 2013. It covers banks as well as other types of investment companies.<\/p>\n
Mark Carney, the governor of the Bank of England, also suggested last month that the cap was one of several EU financial rules that could be removed after Brexit.<\/p>\n
But Brussels\u2019 stance means the UK is set to become reliant on the EU\u2019s various equivalence provisions, which seek a balance between keeping the EU market open to outside businesses and preventing \u201cregulatory dumping\u201d that could give such groups an advantage against European rivals.<\/p>\n
Many banks view the EU\u2019s financial services equivalence regimes as too uncertain and incomplete for them to base their business models on.<\/p>\n
There are also big chunks of banking that are not covered by any equivalence agreements, such as corporate lending, mortgages and payments.<\/p>\n
But companies based in countries without equivalence have no alternative but to establish a subsidiary within the EU \u2014 subject to European licensing and supervision \u2014 if they want to market regulated services, such as execution of trading orders and portfolio management, to European clients.<\/p>\n
The equivalence plans are only one part of the draft law, which, the commission intends, will also overhaul regulations for investment companies based within the EU.<\/p>\n
They will put into practice proposals outlined by Brussels this year for more rigorous equivalence assessments for \u201chigh impact\u201d countries where any lapses in regulation and supervision could \u201csignificantly jeopardise financial stability or market integrity in the EU\u201d \u2014 criteria which would apply to the UK after Brexit.<\/p>\n
Valdis Dombrovskis, the EU commission vice-president responsible for the plans, will say current rules are overly complex and ill-suited to capturing many of the risks that investment groups take.<\/p>\n
Brussels will propose that large investment banks should be placed more explicitly under the authority of the European Central Bank, the euro area\u2019s top banking supervisor \u2014 a move also intended to better prepare the EU for any post-Brexit relocations from London.<\/p>\n
The proposals will also seek to slash red tape for smaller businesses operating in the single market, as part of the EU\u2019s project to develop a seamless capital markets union for cross-border investment.<\/p>\n
Article from the \u201cFinancial Times\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Investment banks in Britain would have to stick closely to EU rules on issues such as bonus caps after Brexit, under proposals the European Commission is set to make on Wednesday. The commission is planning tougher scrutiny of financial centres outside the EU that offer services to European clients, even as it insists that financial […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":["post-3946","post","type-post","status-publish","format-standard","hentry","category-brexit-updates"],"yoast_head":"\n