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EU financial services regulation under the microscope

Wealth Management Association deputy chief executive John Barrass assesses the implications of the Treasury’s ‘balance of competences’ review.

After May’s European elections, we’re currently experiencing a hiatus in our day-to-day dealings with Brussels. The EU Parliament may have approved Jean Claude Juncker’s nomination to head up the EU Commission, but it is not until late August that we will see any progress on which commissioners are going to be assigned which portfolios.

Most MEPs, like UK politicians, are now on their summer holidays – even the Council is in recess. However, even while Brussels and Strasbourg have quiet periods, the relationship between the UK and Europe continues to come under the regulatory microscope.

The latest comes from HM Treasury and the much-anticipated Balance of Competences review, this time on financial services and the free movement of capital.

Given the huge regulatory changes in recent years – including the likes of Mifid, CRD IV, PRIIPs, AIFMD and CSDR – and the significant impact they have had, not only on the City of London, but on firms across the UK, what does the latest review tell us about retail financial services?

First and foremost, and something we tend to agree with at the WMA, is the fact that the single market provides significant benefits to the UK consumer. Bigger markets do provide new and exciting opportunities for the ordinary retail investor.

Opportunity for growth and enhancing our prosperity is something we all should welcome. The issue we have is when harmonising the rules for these markets not only complicates such opportunities, but in fact prevents them from happening in the first place.

When EU policymakers and regulators create new legislation, understanding of unique differences are not always apparent, particularly when it comes to the UK retail financial services model.

A point that we continue to stress is the fact that retail markets remain inherently local. The EU may have evolved so that wholesale institutions have established branches or subsidiaries in other EU nations, but the fact is, our sector simply doesn’t work like this.

Not only are the UK and Irish retail markets different to what we define as the European bancassurance model, but in practice it is extremely unlikely that an Italian investor in Milan would deal with a wealth manager in Manchester.

Not that they can’t, but it is simply a fact that they don’t and are highly unlikely to. Retail consumers tend to purchase financial services from local advisers and long-established firms. We simply cannot have ‘one-size-fits-all’ legislation in this area because the investment cultures differ to widely between different member states.

Another issue highlighted by the paper is the pace of change. As I mentioned earlier, there are several pieces of legislation that have and will fundamentally alter the retail financial services landscape.

We need to ensure that all member states appropriately implement these rules in the first place, rather than making new proposals to cover for poor implementation. It will take several years to see this impact. However, we will only know what this is, and where further work may be necessary to augment, revise or reduce the level and type of regulation achieved, by careful monitoring over a period of time.

If this means that no future policies are devised over the next Parliament then so be it. It is much better to get things right the first time around, as opposed to spending valuable legislative time making up for earlier mistakes.

There will no doubt be a difference of opinion between in the wealth management sector compared to say the banking and wholesale market. We operate differently and the way we interact with our clients is different too, but that is not to say the EU cannot differentiate between diverse markets when devising laws.

There are many areas in EU law that work in this way, particularly around consumer protection. However, there are areas that simply do not.

The Balance of Competences is an important paper in assessing Britain’s relationship with the EU and will hopefully be on the reading list for many of our new MEPs on their summer holidays.

John Barrass is the deputy chief executive of the Wealth Management Association   

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