Banks need new UK-EU regulatory process after Brexit, says Hammond


UPDATE 1-Banks need new UK-EU regulatory process after Brexit, says Hammond

* Hammond wants pragmatic approach to financial services
    * Says understands EU concerns about euro clearing
    * Carney warns about splitting euro clearing markets

 (Adds more detail, Carney, changes media identification slug)
    By Huw JonesLONDON, June 20 (Reuters) - British and European Union banks
need a new system to let them do business with each other after
Brexit to avoid splitting markets, Britain's finance minister
Philip Hammond said on Tuesday.
    Britain, the EU's biggest financial market, is leaving the
bloc in 2019, raising the prospect of an abrupt cut in
cross-border links without a new trade deal. Rival financial
centres, including Frankfurt, Paris and Luxembourg, are vying to
    Hammond said Britain's Brexit negotiations with the EU would
take a "pragmatic approach" to financial services and how they
are supervised.
    "Fragmentation of financial services would result in poorer
quality, higher priced products for everyone concerned," Hammond
told a financial audience in London.
    At present, banks and insurers in London serve the EU market
from a single base, but this "passporting" is set to end after
Brexit without new arrangements.
    "First, we will need a new process for establishing
regulatory requirements for cross-border business between the UK
and EU. It must be evidence-based, symmetrical and transparent.
And it must reflect international standards," Hammond said.
    "Second, cooperation arrangements must be reciprocal,
reliable, and prioritise financial stability. Crucially they
must enable timely and coordinated risk management on both
    "Third, these arrangements must be permanent and reliable
for the businesses regulated under these regimes," Hammond said.
    Without passporting, banks, insurers and asset managers in
Britain would only be allowed to access the bloc's single market
if they set up costly subsidiaries in the EU, which some are
planning, or by using the EU's "equivalence" regime.
    Brussels allows market access to foreign firms whose home
rules are "equivalent" to those in the bloc, but this can be
withdrawn at short notice.
    Last week the bloc proposed toughening "equivalence" for
foreign central counterparties (CCPs) or clearing houses used by
EU customers, seen by London's financial sector as a land grab.
    Under the proposals, a foreign CCP that clears large amounts
of euro-denominated business must be directly supervised by EU
regulators and, if necessary, the business moved to the bloc to
safeguard financial stability.

    Hammond said "protectionist agendas" were being advanced,
disguised as arguments about financial stability and supervisory
    But in a broad hint that Britain would accept some loss of
regulatory sovereignty after Brexit to avoid loss of market
share, he said the bloc has "genuine and reasonable" concerns
about financial markets outside its jurisdiction.
    "We saw such a concern articulated in the EU's proposal on
supervision of CCPs last week. We must, and we will, engage with
all genuine concerns," Hammond said.
    London-based LCH <LSE.L> dominates euro clearing, and Bank
of England Governor Mark Carney, who spoke alongside Hammond,
said fragmentation of the business was in nobody's interest and
could actually damage financial stability.
    "Any development which prevented EU27 firms from continuing
to clear trades in the UK would split liquidity between a less
liquid onshore market for EU firms and a more liquid offshore
market for everyone else," Carney said.
    Authorities should instead build on current models to
develop "a new form of regulatory and supervisory cooperation".
    "The European Commission's proposals announced last week
recognise the importance of effective cooperation arrangements
between the relevant EU authorities and their overseas
counterparts," Carney said.
    "The Bank welcomes this."

 (Reporting by Huw Jones; Editing by Alison Williams and Andrew
 ((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters
Messaging: huw.jones.thomsonreuters.com@reuters.net))


This article appears in: Stocks , World Markets , Banking and Loans , Politics

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