For anyone with doubts about the post-Brexit direction of EU financial services policy, just take a look at what Brussels is up to on hedge funds.
The European Commission published a consultation paper at the end of last week reviewing its nearly decade-old legislation for the industry.
It reveals an EU policymaking machine highly preoccupied by the threat that its rules could be undermined from abroad.
No fewer than two-thirds of the questions in the consultation paper’s “International Relations” section invite the reader to consider whether and how non-EU access to the bloc should be better policed.
They range from whether “delegation” rules allowing funds to be managed from overseas (say, from the City of London) need to become more restrictive, to whether managers based abroad (say, in Jersey or Guernsey) create an “unlevel playing field” by using national access schemes to bypass EU authorisation and tap investors.
Veterans of the preparations for the Brexit referendum will remember that the way a question is phrased is highly important. Here’s Question 54 of the consultation: “Do you consider that a consistent enforcement of the delegation rules throughout the EU should be improved?”
Either you have to agree with the question, or you find yourself being an advocate for inconsistency and lack of improvement.
The paper was published on Thursday under the banner of the “Capital Markets Union”.
The CMU was originally conceived, pre-Brexit, as a way to make the continent more attractive to foreign investment, but it has since transmogrified into something that seems to be more about onshoring financial services and supervisory centralisation.
It is a direction of travel that manifests itself across different policy files: Brussels in recent years has toughened up the conditions for non-EU countries to qualify for financial-services access rights, known as equivalence provisions. The EU has also equipped itself with the legal power to force crucial market infrastructure to relocate into the bloc to serve European customers.
Some might say this is all for the best — after all, this approach reflects a certain vision of the single market long pushed by Paris and, in fairness, others too: one with a focus on a strict internal level playing field and barriers to entry.
But how will this fare with member states? One of the interesting things about the hedge funds paper is that Brussels has fought and lost on this terrain before.
The EU executive branch proposed back in 2017 that the bloc’s market regulator should have the right to police delegation rules for hedge funds and retail investment funds. But the plan was knocked back by a coalition of smaller member states, cheered on by the European fund sector. One of the staunchest opponents was Luxembourg, whose fund industry is closely interlinked with the City.
Similarly, some member states have been getting a bit jittery recently about other parts of the commission’s policy.
Ireland last month raised the problem that, unless the UK were granted crucial regulatory permissions by Brussels, European traders could be banned from trading dual-listed shares in the City. There are many dual-listed companies in Europe, including Ryanair and Tui, the travel company.
Dublin and other capitals called for action, with suggestions at one stage of emergency legislation, leading a rattled Brussels to warn that this would meddle with the Brexit negotiations. The upshot is that the European Securities and Markets Authority is set to present a solution on Monday.
Expect many more such discussions over the months to come: the commission is preparing a major review of the EU’s market rule book next year, alongside its update of the hedge funds legislation. Brussels has also been clear that some equivalence rights for the UK will not be settled before the end of 2020.
One thing all sides agree on: much of the work to determine the new EU-UK financial services relationship will not be done this year, but in 2021, and even beyond.
Chart du jour: uninterrupted ascent of super-rich
The pandemic is widening financial inequalities, as the super-rich in countries including Germany, the UK and France get richer. Their advisers — many of whom counselled wealthy Europeans to remain calm during the selling at the start of the crisis — have also benefited financially. (chart via FT)
Europe news round-up
Pandemic-struck EU member states have made it plain that they intend to fully tap the €390bn of recovery fund grants leaders agreed in July. What is much less clear is how far they intend to avail themselves of the cheap loans the commission is also offering. (FT)
Booking.com, one of Europe’s few tech giants, has hit out at Brussels’ plans to potentially regulate the company as a “gatekeeper”, warning that attempts to “handcuff” the platform will give advantage to foreign rivals. (FT)
Europe is heading into lockdown again after Italy imposed the harshest pandemic restrictions since spring. Brussels has also tightened rules, while Spain imposed a national curfew. (FT, Brussels Times, BBC)
EU television manufacturers have warned that they may be locked out of the benefits of a future UK trade deal, threatening thousands of European jobs and driving up the price of TVs for British consumers. (FT)
A boycott of French goods in Kuwait and Qatar is gathering momentum in reaction to popular disquiet at Emmanuel Macron’s crackdown on radical Islamism. (FT)
Coming up this week
Intensified Brexit talks continue in London until Wednesday before moving to Brussels from Thursday.
Minimum wage proposals are due from the commission in the middle of the week. On Thursday, Margrethe Vestager, the EU’s executive vice-president in charge of competition and digital policy, is set to take part in a virtual event on the proposed Digital Services Act.