British bank muscles weakened in Brussels

LONDON Wed Nov 9, 2011 6:01pm GMT

Banks and offices are seen in the Canary Wharf financial district in East London, September 22, 2011. REUTERS/Paul Hackett

Banks and offices are seen in the Canary Wharf financial district in East London, September 22, 2011.

Credit: Reuters/Paul Hackett

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LONDON (Reuters) - Britain's financiers are not used to being ignored.

So when Prime Minister David Cameron publicly slammed French-led calls for a so-called Robin Hood tax on the industry his words were a welcome boost for a sector struggling to make itself heard.

Such open support has been rare since the 2008 financial crisis. Britain's bankers have instead seen their once-mighty influence over the shape of regulation in Europe wane.

Caught between a shift away from local regulators towards Brussels as the centre for decision-making on finance, and a global wave of anti-bank sentiment since the crisis, spurned UK lobbyists are having to rethink their tactics.

"We have to recognise that this is the reality. It's no good for the UK to arrive at the negotiating table late, and certainly with a negative attitude," said Chris Cummings, Chief Executive of lobby group TheCityUK, adding that this had previously been Britain's stance.

"We also failed to understand that arriving with a very good technical argument in a politically charged environment simply wouldn't cut the mustard."

One of the worries for Britain's bankers is that new European laws could kill off business as well as drain some away to France and Germany.

This includes mooted rules on derivatives clearing that favour euro zone countries, a move that has prompted Britain to sue the European Central Bank.

Whether as a centre for this kind of trading, accounting for almost half of the daily turnover of interest rate derivatives globally, or as the main hub for Eurobond issuance, Britain's financial services sector is by far still the biggest in Europe.

Even globally, it is the biggest centre for foreign exchange trading and a big player in commodities, while its asset management business is more than twice the size of Germany's.

For some, the magnitude of antagonism within Europe is only just becoming apparent, even if it has its roots in the British bank bailouts of 2008 that exposed the failings of the UK's "light-touch" regulatory model.

On recent visits to Brussels, senior British-based bankers said they found themselves effectively blocked out of meetings with regulators and policymakers.

More than three years on from the financial crisis, even the mere mention of the words "UK" and "City" -- a reference to London's financial sector -- closes doors, one banker noted.

A GOLD-STANDARD REGULATOR

It's a far cry from before the pre-crisis world, when the UK could take a laid-back approach on European financial matters and still see its input applauded and taken on board.

The UK's perceived expertise on finance used to unlock all the doors, said TheCityUK's Cummings.

"The Financial Services Authority was widely regarded as the gold-standard regulator, and others would second their staff to the FSA so they could learn how regulation should be done."

But since 2008, the "light-touch regulation" Anglo-Saxon banking model has been lambasted, not least within the UK.

Several major lenders had to be part-nationalised, including Royal Bank of Scotland (RBS.L), while the FSA admitted to a number of failings following the bailout of Northern Rock.

Politicians in Europe had to counter a wave of public anger in their own countries over banking bailouts, leading to a crackdown on banks and trading and pay practices.

The size of Britain's financial services industry -- still Europe's biggest by some way -- meant it felt this more keenly.

Conversely, the UK's hold over regulators weakened, both on its home turf and in Europe, where three new authorities overseeing markets, banks, and insurers and pension funds emerged.

These authorities will agree rules under majority voting that are directly binding on member countries like Britain.

"The industry has complained as they're not quite sure how to extend their influence over the three supervisory authorities, so they probably don't get their phone calls returned as quickly, " said Kern Alexander of the Institute of Advanced Legal Studies, who has advised the European Parliament Committee on Economic and Monetary Affairs.

He added Britain's financial services had enjoyed "a nice cushy relationship with the FSA," which was also changing.

LONDON IN THE CROSSFIRE

Rocky relations between Britain's coalition government and euro zone countries struggling to overcome a spiralling debt crisis are also unlikely to help the UK regain its footing.

Cameron was recently told to "shut up" in a recent clash over the euro with French president Nicolas Sarkozy, further denting Britain's image in Europe.

But lobbyists' struggles are more likely derived from a prevailing anti-banking sentiment rather than an anti-UK one.

"There is a school of thought in the (European) Commission that believes that the root of all evil is speculation and transactions in derivatives," said David Llewellyn, professor of banking and finance at the University of Loughborough.

"If they start off with that general philosophical view, it is inevitable that London will be badly affected."

As far as representation in Europe is concerned, the UK has its place at the regulators' table as much as any other country.

Llewellyn, who is one of five Britons in the banking stakeholder group that advises the European Banking Authority, one of the new super-regulators, said he felt the UK's voice was as strong as it had ever been.

Influential Britons in Europe include Sharon Bowles, who chairs the parliament's economics committee, which ultimately has a say on any regulation put forward by the Commission.

Britain has even aired using a long forgotten national veto dating back nearly half a century, a step legal experts warn is unworkable for handling day to day EU business.

SHOOT THE MESSENGER

Having a voice as a banking lobby group is a different matter, however -- something TheCityUK is very aware of.

"We have difficulty if we present ourselves as lobbyists," Cummings said, adding that the word evoked a group working against regulators rather than alongside them.

But the shift in tactics at TheCityUK goes deeper than just semantics. Cummings said the group was working more in partnership with other countries that were traditionally less involved in financial service discussions.

"An argument presented by the Swedes or the Polish carries far more weight than one that's presented by the UK at the moment," said Cummings.

"The point may be exactly the same but it's understanding that the politics of the situation require a more sophisticated, thoughtful approach than perhaps would have been the case a few years ago."

Critics say Britain, faced with majority voting on EU rules, simply has no choice but to compromise and build alliances to shape new regulation or else be outvoted.

Sheer persistence, meanwhile, may be one way forward.

"If people in the UK feel cut out, the challenge is to be in Brussels even more often, providing information that's even more helpful," Cummings said.

(Reporting by Sarah White; Editing by Alexander Smith)

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scyth3 wrote:
Thanks, good story.

Nov 09, 2011 6:49pm GMT  --  Report as abuse
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