The EU is getting lost on financial services.
Britain’s departure from the bloc could have created new momentum for the the EU to develop its capital markets or complete a single banking market. As Fabrice Demarigny, a former French regulator who chaired a key capital markets group, said in 2019, Brexit was creating a “pretty strong sense of urgency”.
Yet nearly three years later, Brussels is struggling to articulate a clear post-Brexit vision. Instead, the financial services agenda languishes, with no country stepping in to replace the UK and move the debate forward.
“Before Brexit, the UK was clearly shaping the financial services debate,” said Nicolas Véron, senior fellow at the Bruegel think tank and the Peterson Institute for International Economics.
“They were coming up with stuff and had informed opinions on everything,” he explained. “They were sort of a central node in the financial services policy debate. Other member states just had to…react to the UK positions, or push or pull. Let’s go.”
Plans for an EU ‘capital markets union’ and ‘banking union’ also risk turning into empty slogans, with broad agreement on goals but no real idea of what they should be. really involve.
“We have slogans because we don’t have a project or a vision,” Véron said.
One example is the master plan concocted by Eurogroup chief Paschal Donohoe to break the deadlock over banking union. He received a rather cold reception on Tuesday, as most countries’ finance ministers remained entrenched in their national positions.
“I’m certainly not saying our differences have been resolved,” Donohoe conceded on Tuesday. “The banking union remains a very complex project, both technically and politically.”
The UK’s departure has also left Brussels with less direct contact with financial markets.
“There’s no idea what’s going on with the markets,” said Karel Lannoo, director general of the Center for European Policy Studies. “Now [that] the UK is gone, I don’t hear a lot of market reviews in Brussels.”
“We have far over-regulated capital markets and we need far more flexible and adaptive regulation,” he added.
The EU is still keeping a close eye on the UK, which is no longer waiting for access to the EU market.
A documentobtained by POLITICO as part of a freedom of access request, shows that the Commission briefed experts in EU capitals on a detailed breakdown of the differences between its market reforms and those pursued in London.
The unusual step shows how closely Brussels is following movements across the Channel – and indicates areas where the EU and UK are now heading in opposite directions.
This is because, despite the lack of a comprehensive vision, there is still a lot of financial services legislation going on in Brussels. One of the biggest capital markets reforms underway in the legislative machine is an effort to create a ticker for stocks and other financial instruments.
The Consolidated Band, which has existed in the United States since the late 1970s, could help market participants locate the best price and volume for their trades in disparate European markets. Without London, EU markets are fragmented into several financial centers – such as Amsterdam, Dublin, Frankfurt, Luxembourg and Paris – and different types of trading venues.
But the complex package is unlikely to bear fruit for at least five or even 10 years, according to Lannoo. “It’s important, but it’s probably not the priority,” he said.
The EU should focus on tackling the high fees that fund managers charge for managing retail savings and on creating a single supervisor and a single process for public listings, a- he added.
A major obstacle is that the consolidated band debate is highly polarized. Stock exchanges, investment banks, fund managers and even retail investors are all at war over the exact design of the project.
Exchanges, for example, are resisting because a gang would eat away at their revenue model. This creates a political problem because individual capitals don’t want to hurt their own national trading platforms.
“There is a real plurality of opinions,” said a pro-band lobbyist. “There is absolutely no common vision.”
The outcome will likely come down to political bargaining between countries. “That’s where we miss the UK the most, because at least there was a staunch supporter of the free market,” the lobbyist said.
And then there is France’s “strategic autonomy” agenda, which gained new momentum with the war in Ukraine.
For financial services, the more protectionist tilt is most evident in the euro clearing debate. The Commission is actively trying to force a shift towards the continent to strengthen its financial system and build capacity on the continent, despite protests from market players.
Difficulties in dislodging netting – which could create its own risks to financial stability and cause EU players to pay more – means that so far the EU has had little success. Clearing remains the only area of UK financial services with continued access to the EU market.
Yet the desire to move land clearing within the bloc is part of a focus on reducing dependence on the City of London – part of the strategic autonomy agenda.
But the inward orientation also goes against the basic principle of open financial markets, leaving Brussels to preach a sometimes contradictory view.
“It’s about standing on our own two feet, having confidence in our place in the world, while remaining open and competitive,” EU financial services chief Mairead McGuinness said in a recent speech. controversially comparing the EU’s dependence on Russia. oil with its reliance on London clearinghouses.
McGuinness, who took office promising to put consumers first, also outlined plans for an “ideas forum” with industry and citizens on the future of finance – likely after the summer – who will try to have an “overview” and to solve the problems. like climate change and digitalization. There are also plans for a retail investment strategy towards the end of the year.
The forum could help the EU sketch out what it really wants from financial services, including how to draw the line between a robust financial system and open markets.
Paola Tamma contributed reporting.
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