As published on citywire.co.uk, Thursday February 6, 2020.
The European Union is planning a number of key changes to Mifid II rules following Brexit, in a move that could weaken the stranglehold of the City of London.
Among the key revisions to sections of the rule-book influenced by UK lobbying is a change to rules on investment research, designed to prevent the largest banks from eating up market share via knock-down pricing.
Last year, the FCA warned of 'loss-leading' price distortion, adding that banks may be using their size to undercut independent houses and smaller brokerages. Some banks may also be pricing below cost in order to capture market share.
That is a part of a package of changes being pushed by states including Germany, France and Belgium who are hoping to re-write the rule book in favour of the EU's internal market, Bloomberg reported.
German member of the European Parliament Markus Ferber told the agency: ‘The fact that the biggest financial market in Europe is now outside the EU will change the equation for financial-service regulation in general.’
Germany is also looking for a review of the Mifid II rules on open access, set to take effect later this year, that loosens European firms’ control over listed products by separating where derivatives can be traded and cleared.
The EU will seek feedback from banks and financial firms within the coming days and is expected to propose amendments in the third quarter.
Following the its departure from the EU, UK-based financial firms will have to rely on a process called equivalence, in which they would have to prove to Brussels that their regulations are as tough as the EU's.
Nathaniel Lalone, a partner at London law firm Katten said: ‘Combining the Mifid review with equivalence allows them the possibility to move the goalposts for equivalence, which could very well give the EU more leverage.
‘There is a risk that the Mifid review could be misused for political ends, which could ultimately, and regrettably, serve to frustrate access to EU markets by City firms.’
The changes could also convince global majors such as Goldman Sachs and JP Morgan Chase & Co to relocate areas of operation to Ireland and the continent, while strengthening the dominance of Deutsche Boerse AG against the London Stock Exchange.