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The very large firms, which are all headquartered in London today, will be required to obtain a banking license – to the extent they will relocate to the EU – given the possible systemic effects. For mid-sized and smaller firms, a different and lighter regime is proposed.
This initiative should be welcomed in the context of capital markets union (CMU) as it not only harmonises, but also recognises that a clearly distinct regime is needed for investment firms with their different risk profile. Vibrant capital markets require specialised intermediaries, but they have been priced out of the market in most countries.
A further ambiguous aspect is the status of other regimes. Apart from the investment firm regime, there is also the UCITS asset management company regime, which is kept separate, with different capital requirements and also largely left to national discretion.
All in all, this proposal is to be welcomed, even more so as we are looking for tangible outcomes of the CMU initiative of the Juncker Commission. It could restore a competitive environment for non-bank investment firms, certainly in the EU-27, where it will be needed following the departure of the most developed capital market in the EU. Mirroring the practice that is in place in the UK today will require a rapid reaction by EU-27 in adopting the proposal, but also by the member states in preparing to implement it. This may also enable the improved equivalence regime contained in this proposal to work more effectively in the future and allow for flexible cooperation between the UK and the Continent after Brexit.