Business Brexit

Tuesday 21 November 2017

Rival European regulators offer less oversight in bid to lure banks

European Central Bank (ECB) headquarters in Frankfurt. Photo: Reuters
European Central Bank (ECB) headquarters in Frankfurt. Photo: Reuters

Huw Jones and Colm Kelpie

Countries hoping to lure banks after Brexit are offering differing regulatory standards, raising fears at the ECB that light-touch supervision could undermine its aim of making financial regulation consistent across the bloc, according to financial newswire Reuters.

The news bears out fears raised last month by Financial Services minister Eoghan Murphy.

A gap in EU financial rules means member countries can offer looser regulatory standards as they vie to attract the trading operations of London-based investment banks.

The European Central Bank is the eurozone's banking supervisor. However, under EU law it does not have direct responsibility for the parts of big banks that conduct most of their market trading - known as broker-dealers - even though they are some of the most complex and riskiest parts of their businesses.

This is largely because when the ECB became responsible for eurozone supervision in 2014 the bulk of broker-dealers were in London and therefore not under its purview.

This means banks now looking to relocate these operations, to continue to trade continental securities after Britain leaves the EU, will have businesses approved and supervised by the national markets regulator of whichever country they move to.

Such inconsistencies mean broker-dealers trading in the same markets in Europe could be subject to different regulatory requirements, the newswire reported, and raise the prospect that some would take on more risks than other regulators would deem appropriate.

It is an issue that has already been flagged here by Minister Murphy, as Ireland competes with other EU countries for companies and jobs displaced from London as a result of the Brexit vote.

Mr Murphy said last month that Ireland faces "dangerous competition" for Brexit-related spoils and questioned whether regulators in some other EU capitals were being prudent.

He said he believed there was "regulatory competition" going on to try and attract firms and sectors that could be looking for a "back door" into the single market.

"Some of the feedback that I'm getting from companies interested in relocating out of London into Ireland is that some of the things that are being suggested to them by regulators in other jurisdictions make me worry about relaxed standards being applied by other regulators so they can be more competitive in attracting competition," Mr Murphy told the Irish Independent at that time.

He cited sectors such as insurance and fund management and signalled suggestions were being made to companies by regulators that might not be doable within the European context. It is understood that concerns related more to smaller jurisdictions, rather than the larger EU capitals. Mr Murphy raised his concerns at a meeting with European Commission vice-president Valdis Dombrovskis.

Across the eurozone, the likes of Frankfurt, Dublin, Luxembourg and Madrid are vying to lure banks, hoping to benefit from the tax revenues and jobs they would bring. Regulation is one way to differentiate themselves.

However, the Central Bank of Ireland has stressed that it has adopted a consistent position in relation to Brexit-related supervisory queries. Governor Philip Lane has said the bank's approach is in line with sound practices being agreed across Europe. And he has said any entity locating here needs to be substantively run from Ireland.

Additional reporting by Reuters

Irish Independent

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