Attack on British banks makes the EU 'less competitive'

European Commission under fire for telling financial firms to set up subsidiaries within the bloc

Source - Daily Telegraph - 22/11/21

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Brussels risks undermining the competitiveness of the European economy with attempts to force financial companies to set up branches and subsidiaries within the bloc, a top business group has warned.

The European Commission is seeking to crack down on companies based in other nations selling financial services cross-border into the EU, requiring them to set up branches within the area instead.

Meanwhile it wants larger branches to become subsidiaries, as part of a series of steps to move more financial services staff and capital within its borders, allowing the European authorities, rather than merely national regulators, greater control over the industry.

Emma Reynolds, from The City UK, said this risks raising costs in finance which could be passed on to banks’ customers - European households and businesses across the economy.

“It is part of an overall trend we are seeing from the EU which is to use regulation, and this is a tightening up of their regulation, to shift activity into the EU. It is going to make it more costly for financial services institutions, and that cost may be passed to the customer,” she said.

“There are concerns about what this could mean about the EU’s competitiveness, if they are putting up what could be seen as artificial barriers [to trade].”

Such a move to overhaul the way financial services companies operate internationally would also have implications for the EU’s existing hubs of activity, she warned.

“Particularly Ireland and Luxembourg have very open systems so they would have to change them significantly,” she said.

Conor Lawlor, from fellow lobby group UK Finance, said it is crucial the rules to not get in the way of financial services firms serving their customers.

“Market access regimes should enable international firms to allocate resource and capital efficiently to meet the needs of their clients irrespective of borders,” he said.

“Therefore, any regulatory initiatives that reduce the ability for businesses to serve their customers should be assessed very carefully.”

The rules would apply to all non-EU countries, but the move to bring more branches and subsidiaries into the EU has been prompted by Brexit.

The Commission’s documents say “the lack of a robust EU framework for third country groups providing banking services in the EU, has taken a new dimension after Brexit.”

A Commission spokesman said the aim was to harmonise regulation across the EU.

“Our proposal addresses – in a proportionate manner – the issue of the establishment of branches of third-country banks in the EU. At present, these branches are mainly subject to national legislation, harmonised only to a very limited extent,” he said.

“Our proposal harmonises EU rules in this area, which will allow supervisors to better manage risks related to these entities, which have significantly increased their activity in the EU over recent years. This proposal is largely consistent with the requirements that many third countries already apply to foreign branches established in their own territories.”