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Exclusive: Europe prepares raft of post-Brexit banking reforms

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05/15/2019 | 12:21pm EDT
FILE PHOTO: The skyline of banking district is photographed in Frankfurt

LONDON (Reuters) - The European Commission is working on its biggest regulatory push on banking since the 2008 financial crash that could curb Britain's access to the bloc, according to an internal draft document seen by Reuters.

In the 12-page strategy document, EU officials outline provisional financial services plans for the bloc's executive body, which sets the legislative agenda, and is due to have new people taking over the top jobs this year for a new five-year term. Officials are pulling together ideas that could become more formal policies later in the year.

The Commission had no comment on Wednesday.

The document makes clear that there will be an acceleration of financial regulation, after many years when little has happened following a spate of rule-making after the financial crash.

It suggests a review of banks' capital rules by June 2022 that would extend an extra capital buffer imposed on the world's biggest banks, including Deutsche Bank, to other financial institutions such as settlement houses.

The document outlines the possibility of "concentration charges" on banks' holdings of risky government debt, a step global regulators have so far shied away from.

That would be a break with the current situation, where banks do not have to set aside capital to cover holdings of their own government's debt.

With Europe in the middle of a money laundering scandal centred on banks, including Danske Bank, the document also suggests a centralised anti-money laundering supervisor and changes to the bloc's rules to prevent such crimes more binding.

It also flags possible rules to guard against cyber crime.

AUTONOMY

The list of planned legislative changes will also examine how to make the EU less dependent on Britain and London, the region's preeminent financial centre.

"Following the departure of the UK, there will be significant work to manage the relationship between the EU27 and the UK in the field of financial services, which will be a source of risk," the document said.

"What's the right balance between EU and non-EU financial services, in particular in the context of Brexit, in key sectors?"

The paper suggests that this question would be addressed amid continued efforts to build a pan-European "capital markets union" (CMU) aimed at making the EU more self-sufficient in core financial services.

"Building the CMU will be even more important as the UK withdraws from the Union," said the document, which referred to the "autonomy" of EU financial infrastructure.

The many platforms for listing small companies could be consolidated "along the lines of the Nasdaq model". The document makes the case for a single set of EU listing rules and regulator for companies with a market capitalisation of above 1 billion euros ($1.12 billion).

The document also suggests a European Financial Sector Cyber Security Act and new laws governing crypto currencies.

"Cybersecurity could benefit from a more centralised and coordinated approach/framework at EU level," the document said.

New proposals on dealing with failing insurers without public bailouts may be needed. The rules on financial advice and ensuring that investors get the best deal may also need reviewing, the document said.

The "political feasibility" of a European investor protection scheme would also be assessed in a sign of how Brussels is seeking to encourage more cross-border retail activity.

Simon Morris, a finance services partner at law firm CMS, said in response: “First, the EU will accelerate financial change, unhindered by the pragmatic and weighty UK presence."

He said these changes would work against London as it becomes a third country financial centre.

Morris said as a result it would be harder for Britain to achieve the illusory standard of "equivalence" to achieve post-Brexit market access to the EU as it becomes increasingly unattractive for London's financial centre to equate to a less liberal regime.

(Reporting by Huw Jones; Editing by John O'Donnell and Jane Merriman)

By Huw Jones

Stocks mentioned in the article
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EURO / BRITISH POUND (EUR/GBP) 0.02% 0.8792 Delayed Quote.-1.79%
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