U.K. Banks Face Brexit Blow in France's Tilt at MiFID Rules

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France is proposing a rule change that would make life a lot harder for U.K. banks after Brexit.

The nation is seeking to tighten the equivalence rules of the MiFID II regulations, which would help U.K. finance firms do business in the European Union after Britain leaves the bloc, according to an internal policy document circulated in Brussels and seen by Bloomberg News.

As they stand, the rules allow non-EU companies access to the single market so long as their home country’s regulatory regime is deemed “equivalent” to the EU’s. France calls this approach “inadequate” and says it “fails to ensure” that firms in countries outside the EU aren’t treated more favorably than those within it, according to the document dated May 14.

A spokeswoman for France’s representation to the EU didn’t respond to a phone call and text message seeking comment.

France’s attempt to toughen equivalence comes as U.K. banks and finance companies brace themselves for life without the passporting rules that allow them to sell services in any EU member state. Europe’s revised Markets in Financial Instruments Directive, which came into force at the start of this year, could provide a possible workaround for some firms.

Branch Requirement

The EU has already started to overhaul the regime’s equivalence rules for investment services, which remain untested and weren’t designed with Brexit in mind. France is seen as taking the toughest line in the talks and has even been accused of seeking to lure jobs away from the City of London.

In its policy document, France says finance firms should have to set up a branch inside the bloc before they’re allowed to serve clients there. Its proposals will be discussed with other member states, some of which, like Luxembourg, have taken a friendlier stance toward the U.K.

Some EU member states have already pushed back against the French proposal, in part because they say it’s too soon for such wide-ranging changes to MiFID II, which took effect at the start of this year, according to two officials involved in the talks.

“Preventing EU customers from dealing with U.K. businesses without an EU branch would seem to reduce choice and competition,” Rachel Kent, a partner at law firm Hogan Lovells in London, said in an email. “How is that in the best interests of consumers?”

Possible Risks

Once EU nations have settled on a common position, they’ll have to work out a final agreement with the European Parliament.

Europe’s top markets cop on Wednesday laid out his own ideas on how the equivalence system needs to be improved in response to Brexit. Steven Maijoor, chairman of the Paris-based European Securities and Markets Authority, said authorities need the power to “directly assess the possible risks” posed by market infrastructures outside the EU.

While he welcomed that the EU had proposed this approach to oversee clearinghouses in the U.K., “we need to extend the model to other areas,” Maijoor said at an event in Brussels. Equity trading in London, which will continue to be important for the rest of the EU, should also come under direct supervision by authorities in the bloc, he said.

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