The pound fell sharply this afternoon following reports that European authorities are launching an offensive in a bid to weaken the City of London following the UK’s departure from the European Union.
Officials in Brussels, Berlin and Paris are looking to amend the bloc’s Mifid II financial regulations by walking away from concessions made to the UK when the rules were drawn up, according to Bloomberg.
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Regulations covering research spending, record keeping, and trading in stocks, derivatives and commodities are likely to be revised in a way that could make Brexit harder to negotiate for large international banks, it reported.
These rule changes would be aimed at bolstering Deutsche Boerse’s position against the London Stock Exchange in the trading of futures and other listed derivatives.
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“The fact that the biggest financial market in Europe is now outside the EU will change the equation for financial-service regulation in general,” said Markus Ferber, a German member of the European Parliament who helped create Mifid II.
The EU is set to seek initial feedback from banks and other financial firms within days, with a formal proposal expected in the third quarter of this year, Bloomberg reported, citing sources with knowledge of the matter.
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The pound, which had been trading at just below 1.3050 against the dollar, slipped as low as 1.2993 immediately after the news and continued to fall steadily, reaching 1.2966 just before 3pm UK time.
The level of access London’s financial firms will have to the EU when the Brexit transition period ends in December is yet to be determined, and will depend the process of equivalence — under which the UK would have to prove to Brussels that its rules are at least as stringent as the bloc’s.