As Bloomberg reported, plans for an 11-nation financial transaction tax and enhanced powers to ban short-selling, both opposed by the UK, were criticised by the European Council’s legal service and a senior official at the European Court of Justice. The EU executive arm also scrapped a proposal to hand oversight of London’s interbank offered rate to the Paris-based European Securities and Markets Authority (ESMA).
The spate of victories is a boost for UK Prime Minister David Cameron, who is under constant pressure from members of the Conservative Party to seek more concessions from the EU. Cameron said that the country would keep working to protect its interests, including the financial services industry.
Short Selling
In the last of the three decisions last week, the UK won the backing of a top European Union court official for its bid to overturn rules allowing EU regulators to ban short selling. Emergency powers granted to the European Securities and Markets Authority (ESMA) were based on a flawed interpretation of EU treaties, Niilo Jääskinen, an advocate general at the EU Court of Justice, said in a non-binding opinion.
On the central argument, he emphatically sided with the UK and proposed that a key provision of a short selling reform be annulled on the grounds that it was unlawful. He said the ESMA powers, which were based on single market legal base, go beyond an objective of internal market harmonisation, because the agency is empowered to overrule a member state and impose a ban against its wishes. The decision to give the powers to Paris-based ESMA should have required a unanimous vote among nations to ensure "enhanced democratic input".
ESMA was handed an upgraded mandate to police short selling last year as part of a bid by EU lawmakers to make markets less volatile and tame speculation by traders blamed for driving up governments’ borrowing costs.
As the FT (subscription required) reported, although the advocate general’s findings are non-binding they are followed by the court in the majority of cases. Should Britain's legal challenge prevail in the final ruling, it will significantly bolster London's hand in limiting the clout of EU agencies across a host of policy areas.
Michel Barnier, the EU’s financial services commissioner, played down any split with the UK. He said he would wait for the court’s final ruling and didn’t see in this opinion of the advocate general a contradiction with the fact that a European agency can take decisions in the way proposed.
In FN (subscription required), a spokesperson for the UK Treasury said: “The UK supports the Short Selling Regulation, and has engaged constructively with the Commission, ESMA and other Member States. Our legal challenge does not change this.”
Libor
The UK has also sued the European Central Bank at the same court over policies it says push clearing of some derivatives away from the City of London’s financial district. Barnier was forced last week to retreat on other expanded powers for ESMA, scrapping plans to put ESMA in charge of regulating tarnished interest-rate benchmarks, including Libor, in the face of steep opposition from the UK.
Under the alternative plan, the rates would be overseen by a group of national regulators, including the K. Financial Conduct Authority. ESMA would have a role as a mediator between national regulators, the official said.
FTT
EU lawyers also played a key role in giving the UK a chance to block the financial transaction tax in euro area countries, which the UK said would harm its financial services industry even though it wasn’t given a chance to vote on the final measure. The legal service of the European Commission, however, which proposed the levy, stands by the plan and will offer a rebuttal, said Emer Traynor, a spokeswoman for EU Tax Commissioner Algirdas Šemeta.
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