U.K. Finance Dealt Another Brexit Blow by Brussels Lawmakers

(Bloomberg) -- Lawmakers in Brussels are making life harder for U.K.-based financial firms that intend to do business in the European Union after Brexit.

U.K.-based firms would probably need to open a unit in the EU to continue underwriting stocks and bonds and doing market-making business for clients in the bloc under draft legislation endorsed by a European Parliament committee. More than half of European investment firms come from the U.K., and the EU must ensure it can oversee them after Britain quits the bloc, according to Markus Ferber, the assembly’s lead lawmaker on the bill.

“With the new set of rules, we will make sure that those British firms, like any others which come from a third country, remain subject to the EU regime and will have to set up camp in the EU if they want to perform certain services,” Ferber, a German member of the assembly, said in a statement before Monday’s vote.

The legislation, which amends existing laws including MiFID II, still faces months of debate in Brussels. While the parliament has settled on its position, it must wait until EU member states, which function as the second house of the EU legislature, do the same. And talks between the two sides could prove difficult, as parliament stopped short of embracing even tougher proposals advocated by French authorities.

The parliament’s stance underlines the predicament U.K. firms face in trying to access the bloc after Brexit. Without a so-called single-market passport that gives EU firms the right to do business across the bloc, U.K. financial firms may need to rely on "equivalence" rules that can open the single market to non-EU companies.

Under these rules, when the European Commission, the EU’s executive arm, deems a foreign country’s regulation to be as robust as its own in part of the financial markets, firms in that country can get permission to sell products and services to EU customers. The committee voted to remove dealing on own account and underwriting of financial instruments from the list of services eligible for equivalence.

The Association for Financial Markets in Europe, one of the largest industry lobbying groups, said the legislation could fracture business in the region and could “severely limit” the ability of firms from within the EU to deal with those outside.

Disclosure Requirements

The legislation also tries to shine a light on big money managers’ stakes in companies by introducing new disclosure requirements on their investment policies, including their participation in shareholder votes and use of proxy advisory firms.

“Large asset managers such as BlackRock Inc. are a worrying and growing factor in the corporate governance of large real economy businesses,” Sven Giegold, another German member of parliament, said in a statement. “Requiring investment firms to make their investment policy more transparent towards the public is warranted for detecting market power and fair competition.”

Jennifer Choi, global chief counsel for the Investment Company Institute, an industry group for regulated funds, said the disclosure requirements introduced by the parliament are unnecessary, because another EU law, the shareholders’ rights directive, covers the ground.

“It is sensible for policy makers to allow that directive to take effect and study its impact before imposing further, potentially overlapping layers of regulation,” she said.

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