EU proposals give UK more autonomy on financial rules

LONDON, Feb 2 (Reuters) - British financial regulators could have more leeway to impose higher capital requirements on the country’s banks under proposals to keep Britain in the European Union.

European Council President Donald Tusk presented several proposals on Tuesday ahead of a referendum in Britain on its membership of the EU.

One of the proposals addresses the politically sensitive issue of financial rule making and regulation.

London is by far the EU’s biggest financial centre, and Britain’s biggest generator of tax revenues, but the 19 countries using the euro have an inbuilt collective majority of votes when it comes to passing EU laws.

The euro zone countries have a banking union with the European Central Bank supervising their biggest lenders, creating a powerful rival to the Bank of England.

Tusk’s proposal says that substantive EU law, including capital requirements for banks and other rules for ensuring financial stability “may need to be conceived in a more uniform manner” for application by the ECB than by regulators outside the banking union.

“To this end, different sets of Union rules may have to be adopted in secondary law, thus contributing to financial stability,” the proposal says.

British regulators are concerned that European “maximum harmonisation” rules, which impose a level playing field, make it harder for them to demand tougher capital requirements.

“This seems to give the UK the right to have tougher rules as it would be an extraordinary breach of the single market to have lower standards,” said Graham Bishop, a former banker who advises EU institutions on financial rule making.

Having two sets of rules could, however, undermine EU efforts to create a “single rulebook” for its capital markets.

Under the new proposals, the UK could “gold-plate” its capital adequacy standards by adopting higher capital requirements for UK banks, Bishop said.

Britain has long argued it should have this power to ensure financial stability, given that its banking sector is several times the size of its economy, Bishop said.

Tusk’s proposal also formally prohibits discrimination against firms based on currency.

It follows the attempt by the ECB to require clearing houses handling large volumes of euro denominated securities, such as London based LCH.Clearnet, to be based in the euro zone. The EU court upheld a UK challenge to the policy.

The proposal also supports the Bank of England when it comes to dealing with collapsing lenders or introducing extra capital requirements to cool credit supply, known as macro prudential policy.

Reporting by Huw Jones; Editing by Alexander Smith