Brussels will consider Britain’s request only after the transition period which ends at the end of 2020.
As per a senior official from Germany’s finance ministry, the European Union is unlikely to widen the access to its financial markets after Brexit.
Britain has been insistent on its request that it be provided an “enhanced” version of the bloc’s “equivalence” regime after Brexit. The EU grants access to its regime only to those countries whose regulations are deemed by Brussels as sufficiently aligned with those of EU rules.
This system, used by banks across the United States, Japan and Singapore enable them to provide services directly to their clients in the EU without having to set up a subsidiary on the ground – a very costly affair.
However, it does not cover some common banking activities, including asset management and lending which Britain wants it to carry after Brexit so as to safeguard its financial sector.
According to Levin Holle, director general of financial markets policy in Germany’s finance ministry, the existing equivalence regime is already being adapted to reflect Brexit by increasing supervision of foreign clearing houses.
“Expanding equivalence regimes to other areas, for example on banking, however, seems less likely in the short term, since this would touch fundamental questions of EU supervision of these regulated activities on the one hand and national preferences of member states on the other,” said Holle to Eurofi magazine.
For Britain, Brexit could cost it its financial sector with Germany, France and other EU states competing to attract financial firms leaving Britain in order to continue servicing their existing EU clients.
According to Holle, the EU could take key equivalence decisions regarding Britain by the end of 2020, the end of a planned “standstill” transition period during which Britain would continue to abide by EU rules.
As per Christopher Giancarlo, who heads the U.S. Commodity Futures Trading Commission (CFTC), the EU plans on bringing in tighter regulations for supervisors of foreign clearing houses. Unless EU regulators “defer” to the CFTC over U.S. clearing houses, America’s futures markets will face harm.
“It should not be a surprise that the United States will not tolerate such disruption,” said Giancarlo.
The draft EU law would have to be amended in order to align it with rules governing U.S. clearing houses; it will also have to limit its application to EU clearing activity or euro-denominated clearing, said Giancarlo.
According to Brussels, the draft law is focused on supervising clearers like LCH in London following Brexit, as it clears the bulk of euro-denominated derivatives globally.