LONDON (Reuters) - Exploiting loopholes in European Union rules could bar Britain from accessing the bloc’s securities markets after Brexit, a senior member of the European Parliament said on Thursday.
New EU rules to increase transparency in securities markets come into force in January 2018, just over a year before Britain is set to leave the bloc.
Kay Swinburne, a center right British MEP, told an audience of financial industry officials not to exploit loopholes in these new rules after Brexit otherwise Britain’s ability to access the EU market under so-called “equivalence” terms would be jeopardized.
Financial services firms in countries outside the EU can currently sell products to European investors as long as their home rules are deemed as strict as those in the bloc.
Swinburne said the process for Brussels to decide if a country’s rules are “equivalent” should be straightforward, but politics was also going to play its part.
She said the EU took four years to deem one U.S. derivatives market rule equivalent, and British firms would have to abide by the spirit and not just the letter of the EU rules.
“If the UK is seen not to be doing the right thing, there will be a backlash,” Swinburne told a FIX Trading conference.
Currently financial firms in Britain have an EU “passport” to serve investors across the bloc, but this will end after Brexit, leaving equivalence or a bespoke trade deal among the options for continuing trade.
Rodrigo Buenaventura, head of markets at the EU’s European Securities and Markets Authority, said equivalence decisions can take time.
The Swiss had to wait years even though they copied the bloc’s derivatives rules “from A to Z” into their law, he said.
Britain is Europe’s biggest financial center and would represent a large volume of trade under equivalence.
“When deciding whether to grant equivalence, consideration should be given to proportionality, to the links between those jurisdictions, how important is the cross border trade, and how important are the risks and possibility of circumvention,” he told the conference.
EU Brexit negotiator Michel Barnier has warned that Brussels will apply “special vigilance” over equivalence approvals.
Swinburne said EU regulators needed to clarify an element of the new securities rules, known as MifID II, that covers “systematic internalisers” or SIs, which refers to banks matching sell and buy orders for shares inhouse.
The EU regulators are being asked to confirm that linking SIs - which effectively creates a wider, less regulated off exchange market - should not be not allowed under MiFID II, Swinburne said.
Buenaventura said it was up to the EU’s executive European Commission to take a position on SIs.
Reporting by Huw Jones. Editing by Jane Merriman and David Evans