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Monday, June 17, 2013

Another UK win on single market safeguards in financial services?

An interesting report popped up on Reuters this afternoon. According to internal documents seen by the news agency, the UK has secured another important safeguard on financial services.

Specifically, during last week’s negotiations over the controversial revision of the Markets in Financial Instruments Directive (MiFID), an agreement was reached which saw the insertion of the following clause:
“No action taken by any regulator or the European Securities and Markets Authority (ESMA) should discriminate against any member state as a venue for the provision of investment services and activities in any currency.”
This is important given the on-going dispute between the UK and the eurozone concerning the location of institutions engaging in the clearing of euro-denominated financial transactions outside of the single currency bloc.

Quick recap: the UK has launched a case against the eurozone and the ECB at the European Court of Justice after an ECB legal opinion suggested that all transactions in euros should be cleared within the eurozone. This raises questions over the City of London’s position as the financial centre of Europe, and could force trillions of euros worth of financial transactions away from the city.

Although this is a very technical issue it could be a very important one in terms of the debate about the UK’s position in Europe.

That said, we’re hesitant over getting too excited for a couple of reasons:
  • Firstly, this is just a preliminary agreement between officials. The final text still needs approval from the European Parliament and EU political leaders, meaning it could well be subject to substantial revision.
  • Secondly, even if it is kept in, it’s not clear whether it will be legally binding, particularly when it comes to the ECB. Since the ECB is independent and currency issues usually fall under its purview, it may retain jurisdiction and authority over this decision.
Some important caveats then, but there is no doubt this is a positive step and highlights that progress can be made if the UK explores all of its political and legal options to boost its position. The government must continue to do so.


Anonymous said...

Another UK win on single market safeguards in financial services?

How can anyone call this a win when it is a right that we should have anyway?!

Who would give up their power of veto on their primary industry in the first place?!


Rik said...

It is not all doom.
Probably good as well that the sector in a wider sense has a proper look at growth possibilities, Europe is likely to offer. Most caused unintensionally, but that hardly is important.

The main ones that come to mind:
-UK law. Not very likely that a lot of investors, the more independent ones, will like say Greek or Italian law on bonds and probably equity as well.
UK law is not that far from a UK exchange. At the end of the day these investors determine things.
-Basically the same thing with 'overegulation' in general that is likely to take place.

-Taxation. Clear that a lot of holes in Europe at the end of the day will be closed by taxincreases. And the 'fair' movement for Multinationals is one of these things. Popular in political circles, but economically plain stupid.
Hard to see that these MNCs will accept it. Eg valuations are based on low 20% tax. Make it 40 or 50% as some want and the value of companies will drop by approx. a third. First of all this totally rubbished the QE effect. But hard to see CEOs/Boards taken that without a fight. Basically it means that on an average 'CEO watch', when this happens share value/prices will not rise (not even mentioning 'normal' price movements and QE effects that have to be reversed).
Imho this simply means that nearly all quoted cies will look for alternatives. Bit like what we have seen in France with Hollande's 75%, but for companies. And when they are gone they won't be coming back. And they via HQs carry a lot of employment (high end) with them. Plus a lot of tax revenue. 10-20% of a lot is considerable. 100% of nothing is always zero.

Denis Cooper said...

If it's intended to go down the route of spelling out that member states should not suffer from discrimination in this case, as a specific application of a general principle, then that is not a bad idea.

However as the ECB is at the forefront of the attack on the UK it would be better to mention it by name. In fact it would be better to refer not just to "any regulator" but to add in the EU institutions in general and the ECB specifically.

Even then I don't know how the ECJ could be prevented from standing by while the ECB launched an attack on the UK, not because its hands would be tied by the independence of the ECB but because it comprises a bunch of eurofederalists who would like nothing better than to see the City crushed and the UK forced into the euro.

Unfortunately this is the reality of the kind of people we have to deal with in the EU, and as the ECJ asserts that it is the EU's federal supreme court, Rik, and therefore superior to any member state court, Rik, and that its interpretations of EU law can override even the constitutions of member states, Rik, it might be asked why we ever got ourselves mixed up with this system.

Anonymous said...

There is no victory in being in the position of having to ask foreign powers how we can run our own financial affairs.

It is dishonest of Open Europe to claim that such a victory exists.