| LONDON, June 16
LONDON, June 16 - Exempting Britain's banks from
planned European Union rules to curb risky trading would be
illegal, the bloc's lawyers said on Monday in a legal opinion
that marks another setback for UK attempts to limit Brussels'
influence on the City.
EU financial services commissioner Michel Barnier has
proposed a law that would slap curbs on so-called proprietary
trading or banks taking bets on the market. It is similar to the
so-called Volcker Rule that the United States has already
Britain has expected an exemption from core parts of the
draft law because it has already approved a similar rule known
as Vickers, a law that requires banks like Barclays to
wrap their deposit-taking arms with a "ring fence" of extra
capital so that customers' money is safe even if the trading arm
gets into trouble.
France was annoyed that the draft EU law as proposed
contained an article - known as Article 21 - that effectively
exempted Britain because it had passed its Vickers rule into law
by a certain date.
"The derogation mechanism established in Article 21 of the
proposed Regulation is not compatible with the legal basis of
the proposal, with the nature of the proposed instrument as
defined in the [EU Treaty] and with the general institutional
principles established in the Treaties," the legal opinion seen
by Reuters concludes.
A legal opinion from lawyers for the member states' council
carries weight and will almost certainly force the European
Commission to make changes to the proposal.
Britain's Prime Minister David Cameron has pledged to
negotiate a new "settlement" with the EU in order to curb its
influence over the UK financial services sector, the EU's
biggest and a major tax earner for Britain's Treasury.
Britain has already lost a challenge in the EU's top court
against an EU law giving the bloc's markets regulator powers to
ban short-selling, and is also challenging two other EU
policies, including a proposed tax on financial transactions.
The legal opinion will be another blow for Britain's
attempts to limit the reach of EU rules on one of its most
important economic sectors as may give more ammunition to the UK
Independence Party whose anti-EU stance helped it come top in
the European Parliament elections last month in Britain.
The legal opinion, dated June 16, looks solely at the
legality of Article 21 in the draft EU law to curb risky trading
It allows a member state which has already adopted laws with
the same aims as the EU measure to make a request to the EU's
executive Commission for an exemption from parts of the measure
which require the separation of some trading activities from the
main part of the bank.
The Commission has said this would allow member states that
have already taken steps to curb risky trading to avoid costly
alignment of existing, effective provisions with the bloc's
To qualify for the exemption, national legislation must have
been approved before Jan. 29 2014 and meet certain criteria,
conditions which bankers say Britain meets.
"It is difficult to conclude that restructuring costs that
are to be borne out by an admittedly quite limited number of
credit institutions, which by definition are of a certain size
and with consequential financial clout, would have any bearing
on the economies of their host member state...," the legal
Such an exemption lacks an objective justification and
includes a cut off date that is not explained, the legal opinion
Bowing to national law also goes against the principle of
supremacy of EU law, it added and suggests the exemption could
be ditched, allowed for a limited period of time or the cut off
date properly explained.
(Editing by David Evans)