LONDON (Reuters) - The European Union’s system for granting market access to banks from outside the bloc will not work for a financial centre as big as Britain‘s, a top European regulator said on Thursday.
Gerard Rameix, chairman of France’s AMF markets watchdog, said the “equivalence” regime - whereby Brussels grants market access to firms from non-EU countries governed by similar rules - must be adapted specifically for Britain, which is set to leave the European Union.
The bloc must have the right “tools” to protect investors and manage risks to financial stability that come from outside, he said.
“The UK will become a very particular third country on its departure from the EU, considering the importance and size of its financial markets, its location and its historical relationship with EU member states,” Rameix told a Chatham House conference in London.
“The application of such a regime to the UK would therefore be inappropriate.”
His comments triggered alarm among some asset management industry officials at the conference, worried that the EU would be putting up barriers to trade by introducing different levels of access for non-EU firms.
Rameix said the equivalence regime “must be carefully reassessed”.
This would require a more granular assessment of equivalence compared with the current system based on outcomes, he said.
British-based banks, clearing houses and insurers are looking for ways to access clients inside the EU once Britain leaves, when it is expected that unfettered access to EU financial services markets will end.
The equivalence regime was initially seen as one route after Brexit, but banks say it’s too politicised and subject to change and instead some will move staff from London to subsidiaries on the continent.
Rameix said the bloc must also be able to supervise the clearing of euro-denominated transactions. Such clearing is currently based largely in London at operators like LCH (LSE.L).
Euro zone policymakers say clearing houses that handle such trades could need large injections of the single currency from the European Central Bank, if they get into trouble.
“Access to central bank liquidity is an issue that will have to be addressed,” Rameix said.
“The clearing of such instruments, which plays a systemic role ... should come under the supervision of EU regulators to allow them to address risks in this field.”
Nevertheless, how financial markets will look after Brexit remains unknown, with much depending on whether regulation in Britain diverges from Europe after Brexit, he said.
Rameix said it was “in our common interest to maintain constructive relations”, but the bloc cannot allow itself to be damaged by Britain’s political choice to leave.
But the EU and Britain’s Financial Conduct Authority must continue to “preserve the same levels of data flows” as now to ensure proper surveillance of cross-border markets.
“There is not a shadow of doubt that the City of London will remain a key player in financial services,” Rameix said.
Reporting by Huw Jones; Editing by Alexander Smith, Greg Mahlich