EU could demand power to raid UK financial firms after BrexitHeat Profit
The European Union will reportedly demand the right to raid the City’s financial firms and impose new regulations on the sector before Brexit.
According to the Telegraph, during the transitional Brexit period, Brussels will give its regulators, the European Supervisory Authorities (ESAs), extra resources, which will largely be levied from British-based companies.
The timing is significant, as Britain will be stripped of EU voting rights during the transitional period, meaning it will be powerless to prevent the changes from being applied.
Once the transition period is over, the European Commission will rule over the firms’ access to the Single Market and will have the power to withdraw access within just 30 days, should it deem Britain to have moved too far away from EU rules.
“The proposals are of major political and legal importance, substantially altering the European System of Financial Supervision as it was created seven years ago and expanding the powers of the Supervisory Authorities,” the House of Commons’ EU scrutiny committee warned in a report.
Predictably, the news was met by strong criticism from pro-Brexit MPs, particularly after Boris Johnson said on Wednesday that it would be “intolerable and undemocratic” for the EU to impose its rules on Britain after Brexit.
“It would appear that the totally unqualified European Commission will seek to be judge, jury, and executioner over the London financial centre,” Andrew Bridgen, Conservative MP for North West Leicestershire, was quoted as saying.
“Given London’s role as a source of global capital, this is very much a case of the EU cutting its nose off to spite its face.”
Late last year, Michel Barnier, the EU’s chief Brexit negotiator, said it was inevitable British banks and financial services firms would lose passporting rights once the UK leaves the single Market.
The European banking passport system allows banks and other financial institutions authorised to operate in an EU country, or a member state of the European Economic Area (EEA), to conduct business across the union.
“There is no place [for financial services],” Barnier insisted. “There is not a single trade agreement that is open to financial services. It doesn’t exist.”
Barnier added the outcome was the result of “the red lines that the British have chosen themselves. In leaving the single Market, they lose the financial services passport”.
Since the financial crisis, Britain’s regulators have strictly enforced new measures aimed at ensuring the safety of the sector, but Brussels has repeatedly warned Brexit could trigger economic instability across the continent.
The ESA reforms are one of the 37 EU laws that could be imposed on Britain during the transition period, according to a leaked Whitehall report which emerged earlier this month.
One of the most contentious directives would allow the EU to force “clearing houses” to move away from the City and relocate to the continent.
The British capital is the bloc’s financial centre and currently processes approximately 75% of euro clearing transaction, worth a combined €1tn (£880bn) a day in an industry that employs thousands of people.
Euro clearing is a crucial part of the financial sector as it guarantees the flow of money around the world. Clearing houses are the intermediaries of a transaction of financial contracts tied to the underlying value of a share, bond, currency or index.