A gap in EU financial rules is allowing member countries to compete to host the trading operations of London-based investment banks after Brexit by offering looser regulatory standards.
The European Central Bank is the euro zone’s banking supervisor but, under EU law, does not have direct responsibility for the divisions of banks that conduct most of their market trading – broker-dealers – even though they are some of the most complex and riskiest parts of their businesses.
This is largely because when the ECB became responsible for euro zone supervision in 2014 the bulk of broker-dealers were in London and therefore not under its purview.
This means banks now looking to relocate these operations, to continue to trade continental securities after Britain leaves the EU, will have businesses approved and supervised by the national markets regulator of whichever country they move to.
Countries hoping to lure banks to their financial centers after Brexit are offering differing regulatory standards, raising fears at the ECB that they could be subject to light touch supervision and undermining its aim of making financial regulation consistent across the bloc.