U.S. Markets

Shift in euro shares from London to EU is bad for everyone, says UK

LONDON (Reuters) - The shift in euro share trading from London to the European Union since Brexit is damaging to all of Europe because it fragments markets, a top British Finance Ministry official said on Wednesday.

Buildings are seen in the Canary Wharf business district, amid the outbreak of the coronavirus disease (COVID-19), in London, Britain January 27, 2021. REUTERS/Peter Cziborra

Britain left the EU on Dec. 31 and over 6 billion euros a day in euro share trading moved on Jan. 4 from London to platforms in Amsterdam and Paris.

Some trading in derivatives has also moved from London to the EU and New York, with trading in EU carbon emissions set to follow as the City adjusts to having little access to the bloc.

“This isn’t where we wanted to end up, frankly on derivatives trading or share trading,” Katharine Braddick, the finance ministry’s director general for financial services, told an Afore Consulting webinar.

“Broadly it’s a negative impact for Europe as a geography because fragmentation is negative to the operation of efficient financial services, and ultimately its real economy businesses that pay,” Braddick said.

The UK will focus remaining an open financial centre and secure a concentration of trading liquidity “as far as we sensibly can”, she added.

Britain and the EU are in talks on putting in place a memorandum of understanding or “administrative tool” for a “new normal” in financial services relations battered by Brexit, she said.

Braddick downplayed expectations that an MoU would open the door to Brussels granting “equivalence” or direct market access for financial firms from the UK. The EU has said City must adjust to Brexit and that Brussels will not be rushed into granting access.

“The longer we go on without substantial equivalence decisions in place, the more industry moves on, industry adjust, restructure, and they become less material,” Braddick said.

The Treasury is leading a review of how Britain’s 135 billion pound financial sector is regulated now that it no longer has to comply with EU rules, raising expectations of a push to make the City more competitive globally.

But there was a need to understand the difference between what is possible after Brexit and what is materially beneficial without piling on more compliance costs, Braddick said.

“Our rulebook is still extensively the European rulebook. We don’t reject it, we don’t think it’s terrible. The vast majority of it is beneficial to the UK because it reflects international standards,” Braddick said.

Reporting by Huw Jones; Editing by Alex Richardson and David Gregorio