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Jean-Claude Juncker, president of the European Commission, delivers the State of the Union speech at the European Parliament in Strasbourg, France.(bloomberg)
(Bloomberg) -- The U.K. shouldn’t rely on the European Union’s “equivalence” rules to do business after Brexit, according to Britain’s most senior financial-services lawmaker in the European Parliament.
“Equivalence is a strange term, and unique in Brussels terminology,” Kay Swinburne, a Conservative MEP and vice-chairman of the parliament’s economic committee, said in a panel discussion at a conference on Monday. “If I had known the U.K. would rely on it, we would have drafted it a little better in MiFID.”
Under the equivalence provisions of regulations such as the revised Markets in Financial Instruments Directive, non-EU companies can access the single market so long as their home country’s rules are deemed “equivalent” to the EU’s. Some U.K. finance companies had hoped this would allow them to continue with something akin to business as usual after the nation withdraws from the bloc.
Whether this is credible has been thrown into question both by the limitations of the equivalence rules themselves, which Swinburne calls “piecemeal,” as well as by politics.
Judging whether a nation’s rules are equivalent to the EU’s is in the gift of the European Commission, the bloc’s executive arm, and can be withdrawn at short notice.
The example of Switzerland shows how the issue has become politicized. In December, the commission was widely seen as having tied a financial-plumbing issue -- the ability of EU and Swiss investment firms to trade equities on each other’s platforms -- to a broader political spat, giving the Swiss just one year of access.
Last week, Switzerland hit back with a rule forcing foreign venues wishing to trade its shares to seek formal recognition from the state. Recognition could be withheld from the EU if Swiss equivalence isn’t extended.
There’s concern that if Switzerland can be treated this way, the U.K. can, too.
“The Swiss take EU law in financial services and transpose it directly to the statute book,” Swinburne said. “If that’s not equivalent, what the heck is?”
In another potential blow to the U.K., France has proposed tightening the equivalence rules of MiFID II. The proposals, which will be discussed with other member states, would mean finance firms would have to set up a branch inside the bloc before they’re allowed to serve clients there.
It’s an example of how the equivalence rules can be restrictive, said Swinburne.
The EU is already discussing an “enhanced” version of equivalence for Britain, whose importance in financial markets means the existing regime won’t be sufficient, Swinburne said.
“You can’t force people to not trade” so “it’s very difficult to see how you might propose such a set of rules,” she said. “But we are having such a discussion and they do, on a bad day, go to the extreme -- where nobody will ever be allowed to trade anything outside of the EU if it’s an EU asset or euro-denominated.”
(Updates with more details on French proposal; an earlier version of this story was corrected to show that Swinburne’s comments in final paragraph weren’t specifically about French policy document.)
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