22 November 2016

Financial Times: Brexit Britain faces threat of higher EU barriers

Brussels will on Wednesday release its first batch of financial proposals since Britain’s EU referendum, giving an insight into how the bloc’s regulatory landscape may evolve without the UK.

All the signs point towards more fragmentation in the oversight of global financial activities, as the EU and other jurisdictions strengthen their external frontiers and increase the sunk costs for foreign companies operating in their market. For Brexit Britain, that means the risk of higher entry barriers to overcome. “It is all becoming very hard indeed,” said Simon Gleeson, a financial services lawyer at Clifford Chance.

One example of a more protectionist policy drift will come when the European Commission proposes tit-for-tat bank measures against the US, which would force foreign lenders to have additional capital in the EU so their subsidiaries can better withstand a crisis.

Seen in pure Brexit terms, if non-EU banks need to create a separately capitalised holding company in the eurozone, London could look a less attractive headquarters for European operations.

Separately, officials are re-evaluating how Brussels grants EU market access to overseas financial companies, potentially making it harder for the City to use the bloc’s “equivalence” arrangements as a Brexit fallback option.

Charles Grant, director of the Centre for European Reform, said commission officials insist “not entirely convincingly” that this tightening is unrelated to Brexit. But “France is driving this hard line on financial services and nobody is resisting”, he said.

A third leg to the consolidation could come through more explicit “location” policies, restricting where EU-related financial activities can take place. Next week, for instance, the commission will issue proposals on the recovery and resolution of clearing houses. This includes no additional territorial restrictions affecting the lucrative clearing of euro trades in London. But France, Germany and many MEPs support the relocation of euro clearing to the eurozone; proposed amendments to this effect are likely as the legislation is debated. [...]

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