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[...]there is a concern that the current EU policy and political environment doesn’t chime with the overall aim of the CMU to make access to finance easier.
Some fear certain EU financial regulations in the works may in fact restrict the free flow of capital across EU member countries and post Brexit, a move toward a “fortress Europe” may make things more challenging.
“Most [post-Brexit] models between the EU and non-member states would not give U.K. financial services the access that is inherent to the concept of a capital markets union,” said Michael Collins, CEO of Invest Europe, a private equity trade association.
“The U.K. could potentially be left relying on access provisions set out in existing EU law, such as the [Alternative Investment Fund Managers Directive] third-country passport. If Britain wants something ‘bespoke,’ as it has indicated, then a unique arrangement could allow the U.K. to be a full player in the CMU. But there’s nothing concrete on the table that delivers that,” Collins said.
According to Alexandra Hachmeister, chief regulatory officer at Deutsche Börse, “It’s fair to say the CMU will benefit from U.K. investment, and investors in the U.K. need investment opportunities in the EU27. This is where the industry sits. If we have the capital in the U.K., why shouldn’t it still flow to the EU27 for investment?”
If Europe is becoming more closed-off in financial services, Brexit can claim a big chunk of the responsibility.
Take equivalence. Equivalence exists in EU regulations, including its derivatives rules (the European Market Infrastructure Regulation), and allows countries with similar enough legislation to the EU to operate under their own rules without forcing firms to comply with two sets of laws. But since Brexit, the Commission has sought to tighten the screws on how other jurisdictions can obtain equivalence and therefore, access to EU clients — particularly when countries are deemed to be “high impact,” such as the U.K.
AFME’s Portugal notes the lack of equivalence affected the new EU framework for securitisation, the process in which banks package loans into securities and then sell them to investors — something the EU doesn’t do enough of.
“There were proposals from the European Parliament on a regime for third-country [securitisations],” he says. “We felt that was desirable because the U.K. represents a good portion of the current EU securitisation market, and it’s in the interest of the EU to have [a] market with scale and liquidity.”
The final securitisation rules, agreed on in May 2017, did not include a third-country framework.
Financial players caution that if moves such as the one on securitisation mean the EU27 is boxing itself in, it goes against the aims of the CMU and could act as a disincentive for capital markets activities in the bloc.
Ultimately, this may even force firms to go to the U.S. or Asia in order to find financing — surely the opposite of what Europe wants.