(Adds banking reaction, European Commission)
By Huw Jones
LONDON, June 16 Exempting British 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 of London.
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
Volcker Rule that the United States has already approved.
Britain has expected an exemption from core parts of the
draft law because it has already approved a similar rule known
as Vickers, which requires banks like Barclays to wrap
their deposit-taking arms with a "ring fence" of extra capital
so that customer money is safe even if the trading arm gets into
France was annoyed that the draft EU law as proposed
contained a get-out clause - 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.
Barnier's spokeswoman said the Commission would look at the
opinion carefully and remains confident that its proposal is
legally sound, and hopes to see negotiations to approve it
progress quickly in coming months.
But Paul Chisnall, executive director at the British
Bankers' Association, said the legal opinion forces the European
Commission to go back to the drawing board and find a better way
of accommodating EU states that have already taken steps to
limit trading risks.
"The legal opinion... adds a layer of legal complexity on
top of what was already a politically sensitive issue," he said.
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.
British 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.
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 and 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 opinion, dated June 16, looks solely at the legality of
Article 21 in the draft EU law to curb risky trading at banks.
It allows a member state which has already adopted laws with
the same aims as the EU measure to ask the EU's executive
Commission for an exemption from having to separate some trading
activities from the main part of the bank.
The Commission has said this would allow states that have
taken steps to curb risky trading to avoid costly alignment of
existing, effective provisions with the bloc's proposed law.
To qualify for the exemption, national legislation must have
been approved before Jan. 29, 2014 and fulfil certain criteria,
conditions which bankers say Britain meets.
But the legal opinion argues that such an exemption lacks an
objective justification, and includes a cut off date that is not
"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
Bowing to national law also goes against the principle of
supremacy of EU law, it added, and suggested the exemption could
be ditched, permitted for a limited period of time or have its
cut-off date properly explained.
An EU official familiar with the draft law said the issues
raised by the legal opinion could be dealt with.
(Editing by David Evans/Mark Heinrich)