Europe can’t afford to turn away from London

Today, the EU’s former director-general for financial stability, financial services and capital markets union Sir Jonathan Faull reignites the debate and lays down a challenge to authorities on both sides of the channel.

In a new report for the Centre for European Reform, Faull and top City lawyer Simon Gleeson question how the EU can push ahead with its highly-prized (but stalled) ambition of creating a dynamic EU-wide capital market without continued access to the City of London. Gleeson says the EU’s capital markets project cannot be realised “from behind locked doors” and warns the bloc against pursuing “regulatory sovereignty” at a cost to EU businesses and markets.

As the authors argue, Brexit will mean that “Europe’s major hub of non-bank capital will soon be outside the EU’s regulatory purview [and] the EU will need to decide whether to keep London at arm’s length while pursuing an inward-looking strategy, or instead open up its market to London and the rest of the world”.

The dilemma for the EU is clear: integrating deeper with UK and global (US) markets will lower the cost of capital and boost European growth, but doing so will entail surrendering a degree of regulatory autonomy.

The UK faces a similar choice: retain a close regulatory relationship with the EU or prepare for greatly reduced continental market access. This should not be viewed as a zero-sum game, and it cannot be beyond the wit of politicians, regulators and market participants to see that a close relationship is in everyone’s interest.