Proposals to keep Britain in EU must not distort banking rules: watchdog

LONDON (Reuters) - European Union proposals for keeping Britain in the EU risk distorting competition in banking unless they are applied carefully, the bloc’s banking watchdog said on Friday.

A Union Jack flag flutters next to European Union flags ahead of a visit from Britain's Prime Minister David Cameron at the EU Commission headquarters in Brussels, Belgium, January 29, 2016. REUTERS/Francois Lenoir

European Council President Donald Tusk has proposed a package of measures to persuade Britons to vote in favor of staying in the EU when a UK referendum is held, most likely in June.

The proposals, if approved by EU leaders at a summit later this month, would allow countries like Britain that are outside the single currency to have bank capital rules that are different from those implemented inside the euro zone.

This has raised the prospect of fragmenting the so-called EU single rulebook aimed at ensuring consistent supervision of banks across the 28-country bloc’s capital market.

“If a multi-layered single rulebook is to be introduced to achieve this practice, then it has to be managed in an integrated fashion,” European Banking Authority Chairman Andrea Enria said.

Otherwise, rule differences could lead to uneven competition between euro ‘ins’ and ‘outs’, Enria told an event in London to mark the watchdog’s fifth anniversary.

Care was needed to avoid “losing control” of the single market if it moves at two speeds with “tension” between the euro zone deepening integration while the “outs” like Britain, Poland and Sweden stick with broader EU rules, Enria said.

Andrew Bailey, deputy governor of the Bank of England, which regulates UK banks, downplayed the extent to which Britain would deviate from EU rules under Tusk’s proposals, saying the single market was crucial for embedding free trade.

“We should not wish to lose that. This is not about us going our separate ways,” Bailey said.


Bailey said the core of the EU’s single rulebook was common, and the leeway referred to “pieces on the edges” to accommodate national practices, and not to the “heart and soul” of EU rules.

The conference also underscored the shift emerging in EU rulemaking to “proportionality” or lightening the burdens for smaller banks as policymakers begin to revise rules hastily agreed during the heat of the financial crisis.

Easing burdens could also encourage more banks to lend more.

The EU’s financial services chief, Jonathan Hill, said he will propose legislation to ease burdens on smaller banks, and give a European spin to global rules written by the Basel Committee.

Until now, the EU has largely copied and pasted Basel’s bank capital rules into the bloc’s laws.

“I want us to apply rules in a way that takes account of their implications for European businesses,” he said, much to the delight of bankers in the room.

“Proportionality is the icing on the cake,” said Gerhard Hofmann, a board member at Germany’s cooperative banks trade body.

EBA’s Enria said “serious thinking” was needed on a “modular approach” to introducing proportionality by revising rules.

“We are not sitting in the trenches resisting changes to the rules. I would be the first to identify these mistakes and correct them,” Enria said.

Editing by Adrian Croft and Elaine Hardcastle