European Commission Proposal Consolidates Power Over Financial Industry

In an effort to extend the European Union’s (EU) control over the financial industry following Brexit, the European Commission released a proposal on Wednesday (Sept. 20) which stated it would transfer some of the power to oversee the financial industry from each country’s capitals to the European Commission.

According to a news report in Reuters, the move is prompted by the impending exit of London, the main financial hub, from the European Union, an idea which is part of the European Commission’s long-term plan that may result in more regulation of the financial industry in Europe and expand the EU’s international stature.

“What we are proposing is a gradual approach,” the European Commission’s Vice President Valdis Dombrovskis said in a statement during a press conference covered by Reuters. “Eventually, we could arrive at a single European capital markets supervisor.”

Member states in the EU haven’t been keen on giving up supervisory powers to the European Commission, but its efforts to have more oversight via financial regulation are becoming important since the U.K.’s Brexit decision will remove the main financial hub from the EU.

“Finance in Europe is changing due to the departure of the U.K. from the EU,” Dombrovskis said in the report. He claimed that consolidating supervisory practices will enable it to avoid “regulatory arbitrage,” in which countries in the EU try to lure U.K. firms with legal “sweeteners.” The European Commission is also proposing to give it more power over foreign financial companies that operate in the EU.

According to the report, if the proposals are accepted, U.K. firms could be negatively impacted under Brexit, because they could face stricter oversight and may lose access to the EU market abruptly. Of the industries that would be subject to EU oversight right away are financial benchmarks, insurers and regulated funds that sell to the EU, such as venture capital funds and longer term investment funds, reported Reuters.