Brussels to restrict banks from using ‘cross-border’ rights to enter EU

Brussels plans to block a patchwork national agreement that would have allowed banks outside the EU to sell services into the bloc, dealing a blow to London lenders relying on deals to cushion the impact of Brexit.

The proposal would stop most cross-border sales from non-EU countries into the bloc’s single market. Banks are interested in cross-border access to the EU because it is cheaper and simpler to do some trade from their main international hubs than to move capital and staff.

The cross-border crackdown is part of an effort to streamline the way global banks operate in the EU, with Brussels also wanting to give more powers to regulators to make banks turn a The number of branches into subsidiaries is more closely monitored.

This is part of the European Commission’s capital requirements directive, which will provide the legal basis for the latest global bank capital standards and end differences in what national regulators different allowed. It still has to be approved by the European parliament and council.

European Central Bank officials have become concerned about the recent sharp rise in the use of post-Brexit country agreements and waivers to conduct business across borders, as banks continue to continue to serve EU customers from London. Cross-border permissions have long been used by banks based in the US, Switzerland and Asia for some of their EU operations.

Edouard Fernandez-Bollo, a member of the ECB’s supervisory board, warned in September that banks should not use cross-border regimes “as a means to carry out large volumes of operations in the EU during a business-as-usual environment. “.

Peter Bevan, a lawyer at Linklaters, said: “The direction since Brexit is clearly that European authorities are looking to get their hands on more banking, financial and supervisory work within the EU.” “It is clear that there is growing skepticism about the services provided from the UK.”

He said it was “difficult to see” how national regimes that allow cross-border access could be compatible with the commission’s proposals.

The new measure introduced by Brussels restricts cross-border activity from non-EU countries to ‘reverse solicitation’, in which customers approach the bank without any marketing. any of the organization.

“Much of Western Europe has some kind of cross-border licensing regime,” said Caroline Dawson, a lawyer at Clifford Chance. The new measure would “repeal them all,” she said, adding that a reverse referendum is difficult to prove and impossible on a large scale.

She said the restrictions proposed by Brussels would be “cutting people’s options and therefore cutting the volume of business that people will do”.

An executive at a major international lender said that although his bank could use its subsidiaries and affiliates to replace cross-border arrangements, the way it is applied This measure has them worried about the unpredictability of EU policymaking. This is not an impact assessment or consultation, he said.

Brussels’ proposals reinforce the general requirement under existing EU rules that non-EU banks must have a branch or legal entity in a member state where they want to do business.

Dawson said the country approach regimes in Ireland and Luxembourg are among the most flexible in the EU. Luxembourg usually only requires a license if the actual service provider is in the country. Ireland allows most operations on a cross-border basis as long as they do not involve retail customers.

Luxembourg’s regulator did not respond to a request for comment. Ireland’s central bank said it was “looking at all aspects” of the European banking package.

The Swiss Bankers Association said it “grants cross-border market access into the EU to Swiss Financial Institutions. . . contribute to the open and integrated market, therefore, for the benefit of EU investors and therefore ultimately for the benefit of the EU”.

“The European Parliament and the Council of the European Union may revise the new rules,” the SBA added. “We will carefully analyze the possible impact of the proposals with our members. At this point, it is too early to take a final look.”

The European Commission declined to comment.

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