Brussels, 21/03/2016 (Agence Europe) - The United Kingdom leaving the EU would lead London to keep the European regulatory scheme in place for financial services and to adapt its own rules to offset any changes in European legislation, but without having any influence over this process, Clifford Chance stressed on Monday 21 March, in a report commissioned by AFME (Association for Financial Markets in Europe).
The report explains that the regimes specific to third countries included in European financial legislation could offset the impact of a Brexit on cross-border trade. Most of these regimes, however, are based on equivalence and reciprocity and, in the past, the EU has often imposed requirements which go beyond international standards, “and the UK may no longer be willing to accept this”.
“In any event, the European legislators would be able at any time unilaterally to amend or withdraw these regimes. Therefore, in the longer term, these regimes may not provide a stable mechanism protecting market access if the UK and the EU take increasingly diverging and approaches to regulation”, the report warns.
This is also the message sent out by the Commissioner in charge of Financial Services, Jonathan Hill, at a conference hosted by the College of Europe, on Friday 18 March.
In order to conserve its access to the single market, one of the options would be for the United Kingdom to ask the EU to recognise the equivalence of its rules: “a long and uncertain process”, Lord Hill explained. “And even then, businesses such as banks and insurance would have to set up a separate base in the EU to do business there. As it is becoming increasingly clear, there is no convincing answer to how arrangements outside the EU would be better” (than the UK staying in the EU: Ed). Everything would be uncertain, and uncertainty is usually the enemy of investment, the Commission concluded.
In more specific conclusions, the report commissioned by AFME states that the European legislation in force, specifically MiFID and the Capital Requirements Directive (CRD), would no longer allow international banks based in the United Kingdom to offer their services within the EU. It also explains that if the United Kingdom leaves the European Economic Area, any alternative trade agreement could limit cross-border trade. “Banks and management companies would be likely to be greatly affected by these new restrictions to cross-border trade”, the AFME press release reads, going on to identify a possible way of improving the situation by activating a 'passport for entities domiciled in a third country' in the framework of the MiFID regulation. Finally, the negotiation platforms, central clearing houses and central repositories as well as their users could also be affected by the new restrictions, unless the equivalence of these infrastructures is recognised within the European Union and the United Kingdom. (Original version in French by Elodie Lamer)