by Dmitry Leus
There are bigger issues at stake than who should pay for the relocation of the European Banking Authority.
It has been reported in recent days that the European Parliament’s committee on financial affairs believes that the UK should pay for the costs of the relocation of the European Banking Authority (EBA) after the country leaves the EU, writes Dmitry Leus.
Indeed Michel Barnier, the EU’s chief negotiator on Brexit, has said the UK should “fully cover” the costs of all agencies being moved, including the EBA and also the European Medicines Agency (EMA). One of the vice-presidents of the committee, German conservative Markus Ferber , has been quoted as saying: “Without Brexit there would not be any need to relocate the EBA and hence the UK has to settle the bill,”.
Of course we do not know what exactly any relocation costs will be. But surely they will be a minor proportion of the overall costs associated with Brexit. It seems something of a distraction to get caught up in a debate about these specific costs.
From a banking perspective, a much bigger priority seems the issue of “passporting”. There is an EU rule that allows a bank to locate a fully regulated entity on one EU member state and operate across other states without the need for additional local regulation in the other countries. This is commonly called “passporting”.
This practice allowed London to be very much the financial hub for the rest of Europe. Indeed, a large proportion of Europe’s hedging, foreign exchange, lending and securities transaction have taken place in London. The big challenge facing banks is how to manage the future of their European business once London is no longer a part of the EU.
Regarding this passporting dilemma, one option would be for the UK to remain in the single market by joining the EEA and thereby having a similar status to Iceland, Liechtenstein and Norway.
But would the UK really do this, given that being part of the EEA means accepting free movement as well as the authority of the European Court of Justice, which the UK leadership is against? An alternative to passporting could be equivalence. This is where cross-border trading is possible due to countries recognising each other’s standards.
Back in the 1990s this occurred between the UK and the USA regarding mutual access to derivatives markets. Could equivalence be a possible mechanism for the UK post-Brexit? It is not impossible, given that some EU legislation accepts the principle of equivalence. But the EU legislation on this is not complete. Equivalence in commercial banking and primary insurance are not yet covered by EU legislation. If the equivalence route were to be pursued, the UK would need to have a detailed agreement as a framework for resolving any future disputes as well as what would happen in cases where rules differed between markets.
There is a great deal to resolve and debate. Who pays for the move of the EBA seems as though it should be low on the list of priorities.
Dmitry Leus is a London-based entrepreneur and banking and financial
services professional. His previous positions include Chairman of the
Russian Depository Bank. In 2006 he founded Zapadny Bank, where
he worked as Chairman until late 2013.