UK banks face Brexit blow in France's tilt at MiFID rules

Brussels

FRANCE is proposing a rule change that would make life a lot harder for UK banks after Brexit.

The nation is seeking to tighten the equivalence rules of the MiFID II regulations, which would help UK finance firms do business in the European Union after Britain leaves the bloc, according to an internal policy document circulated in Brussels and seen by Bloomberg News.

As they stand, the rules allow companies from non-EU nations access to internal markets so long as their regulatory regime is deemed "equivalent" to the EU's. France calls this approach "inadequate" and says it "fails to ensure" that firms in countries outside the EU aren't treated more favourably than those within it, according to the document dated May 14.

A spokeswoman for France's representation to the EU did not respond to a phone call and text message seeking comment.

France's attempt to toughen equivalence comes as UK banks and finance companies brace themselves for life without the passporting rules that allow them to sell services in any EU member state. Europe's revised Markets in Financial Instruments Directive, which came into force at the start of this year, could provide a possible workaround for some firms.

The EU has already started to overhaul the regime's equivalence rules for investment services, which remain untested and were not designed with Brexit in mind. France is seen as taking the toughest line in the talks and has even been accused of seeking to lure jobs away from the City of London.

In its policy document, France says that finance firms should have to set up a branch inside the bloc before they are allowed to serve clients there. Its proposals will be discussed with other member states, some of which, like Luxembourg, have taken a friendlier stance towards the UK.

"Preventing EU customers from dealing with UK businesses without an EU branch would seem to reduce choice and competition," said Rachel Kent, a partner at law firm Hogan Lovells in London. "How is that in the best interests of consumers?"

Once EU nations have settled on a common position, they will have to work out a final agreement with the European Parliament. BLOOMBERG