By Huw Jones
LONDON (Reuters) – International banks have called on the European Union to make its system for financial market access more transparent and predictable to avoid hurting markets and consumers.
The Association for Financial Markets in Europe (AFME), whose members include major international banks and asset managers, said it was “timely” to review and improve the bloc’s financial market access regime known as equivalence.
The EU grants market access to foreign financial firms like asset managers and clearing houses if it deems their home market rules are similar enough to regulation in the bloc.
Brexit has already put equivalence under scrutiny as there is a June 30 target for the EU to assess the equivalence of Britain’s financial regulation to allow the UK finance industry to maintain some access to EU markets after a Brexit transition period ends in December.
In its 14-page report on Tuesday, London-based AFME only directly mentions Brexit twice, but the publication’s timing highlights concerns over how much direct access the UK financial sector will have to the EU, its biggest export customer.
Equivalence has been criticized for lacking a transparent, predictable timetable, for patchiness in activities covered, and for how it can be scrapped at short notice.
The “lack of communication” over ending equivalence for Swiss share trading in June 2019 led to “significant uncertainty”, AFME said in its report.
Brussels should evaluate the benefits of equivalence to EU investors and not just potential risks to the bloc’s financial system, AFME said.
“This will support continued connectivity with international financial markets, minimize unnecessary fragmentation and maximize benefits for consumers of financial services across Europe,” said AFME managing director Oliver Moullin.
In terms of Brexit, bankers fear equivalence will get stuck in wider talks on a UK trade deal with an EU that also wants to build up its own capital market at the expense of London.
The EU has also toughened up equivalence for foreign clearing houses and investment firms in anticipation of Brexit, and it will also scrutinize applications from “high impact” financial centers more thoroughly in an indirect reference to London.
Brussels has said it would always maintain its “autonomy” in making equivalence determinations, and that it has already improved transparency by announcing last year its decision to scrap equivalence in the area of credit rating agencies.
(Reporting by Huw Jones. Editing by Jane Merriman)