U.K. Banks May Face Stiffer EU Market-Access Rules After Brexit

(Bloomberg) -- U.K. financial firms may soon find that it will be harder to do business in the European Union after Brexit.

EU member states endorsed a bill that tightens the rules that can allow non-EU firms to do business in the bloc. The draft legislation gives the European Commission, the EU’s executive arm, greater power to give foreign firms more limited access to the single market, especially those deemed to be of systemic importance for the EU.

The bill would also boost the powers of EU regulators over foreign firms operating in the bloc. It stops short of requiring non-EU firms to open a branch in the bloc before offering services, something France had pushed for during deliberations on the bill.

With the future ties between the U.K. and the EU not yet settled, officials in Brussels are stepping up efforts to get legislation with Brexit implications over the line before March 29, when the U.K. is scheduled to leave the bloc. The commission has said that U.K.-based financial-services firms will in the future have to rely on so-called equivalence decisions to do business in the EU.

France led the push to tighten the equivalence rules, arguing that the existing equivalence framework had significant shortcomings that could threaten the integrity of EU markets.

Where activities by third-country firms are deemed to be of systemic importance to the EU, the commission would be allowed to attach specific conditions to an equivalence decision, according to a statement on Monday from the Council of the European Union, which represents the interests of national governments in the legislative process. This is meant to ensure that EU authorities “have the necessary tools to prevent regulatory arbitrage and monitor the activities of third-country firms.”

The changes approved by the member states are part of the EU’s work on new rules for investment firms. A final version of the bill must be thrashed out with the European Parliament, which also endorsed stricter market-access rules when it settled on its own position in September.

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