The position of the City of London as the main financial services centre in the European Union (EU) is “uncertain”, according to a new report. This uncertainty is further fuelled by the doubt surrounding the future of the EU-UK relationship.
The 2008 financial crisis has accelerated the UK’s integration with the EU, a trend that is often seen as alien to British interests, and as a result has started a debate on if and how the EU-UK relationship should change.
The report for the City of London Corporation, conducted by Policy Network, seeks to offer insights into the current state of play on banking and financial regulation and the risks of the new uncertainty surrounding the UK’s place in the EU.
The report sets out how the City can maintain a strong financial sector in London as a key component of an integrated single market and a competitive EU.
In response to the financial crisis, the EU has passed or tabled a significant amount of legislation designed to regulate the finance sector. “Given the size of the financial industry in the UK economy, the claim that the City is at risk from excessive or misplaced EU legislation has gained traction in the UK media and political spheres”, the report says.
“Many imagine that London exerts less and less influence against a background of strengthening integration among eurozone members.”
However, the report notes that the UK government has initiated a significant amount of new legislation on its own and G20 leaders committed to revising financial supervision and regulation.
The capital requirements imposed though Basel III have also received criticism. However, the UK asked to go beyond the 7% ratio envisioned by Brussels for Core Tier-1 type of capital. This attitude appears to have been appreciated by smaller countries in the union.
A Belgian MEP told the researchers, “The British are the only ones to be serious with banking regulation. The French and the German political elites are much too close to their big banks.”
The report added that only when the question of bonuses was asked did a rift emerge between British policymakers and politicians and their continental counterparts. From 2014, bank managers’ bonuses may not exceed 100% of their salary, or 200% with the board’s approval, and this has been seen as a threat to the City.
The Policy Network’s recommendations include emphasising in the UK and on the continent that London should remain the natural finance centre of Europe, unambiguously attached to the single market’s regulatory framework.
Other recommendations included renewing the City’s case for a constructive and leading British presence in Brussels and that the UK elite should avoid making unilateral decisions. It should instead seek to improve the quality of EU policymaking.
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