The European Banking Authority Makes its Move to Paris, But at What Cost?

Today’s post discusses the recent, and very much expected move of the European Banking Authority from London to Paris. Very much in response to Brexit, the EBA now sits at the junction of a new phase in its development in terms of forming a central component of a new direction for European financial service provision. This post will discuss this move and also assess an interesting and thought-provoking article by Frances Coppola (@Frances_Coppola) in a recent issue of Forbes.

In November of 2017, Paris and Dublin were tied in the race to be the new home of the European Banking Authority. After the decision of the British electorate to leave the European Union was confirmed, it was deemed essential by the EU that the EBA, and the European Medicines Agency, would both be relocated from London. Whilst the EMA were relocated to Amsterdam, it would be Paris that would emerge victorious in the race to secure the presence of the EBA, in a move that would see the EBA sit in the same City as the European Securities and Markets Authority (ESMA). Despite there being some issues over delays and preferential locations for the EBA a year later, the EBA did finally move to Paris on the 30^th May. As Coppola mentions in her article, there was very little fanfare regarding this move, with a simple change of address on the website being all that evidenced this massive shift for the City of London.

Coppola’s article raises a number of important questions and, although at least one European reporter takes aim at the article, the questions are very much legitimate (the critical report is not particularly formal nor substantial). The article begins by examining the position taken immediately after the referendum result was confirmed, with the UK being optimistic over its chances to keep the EBA in London as it was believed its status was ‘a matter for negotiation’. Coppola discusses how, more than two years later, the development of Brexit negotiations and the lack of agreement on aspects such as so-called ‘passporting rights’ to the EU marketplace have essentially destroyed the ability of the UK to host such a systematically-important financial institution for the EU. Coppola continues by assessing the plans in the EU to develop the European Banking Union, which the EU describes as the forming of a ‘single rulebook’ for all financial actors in the 28 EU countries. Coppola rightly notes that, in light of this unitary aim, the relocation of the EBA to one of the pillars of the European project is particularly well timed. Coppola then goes on to discuss the position of the UK within this current phase. In discussing the view that the British public is losing patience with the hegemony of the financial services sector – a concept derived from Shaxon’s The Finance Curse, as cited by Coppola – the suggestion is formed that, potentially, the forcing of the British financial sector to become an offshore financial centre, may not be excessively negative. The suggestion is that the EU would not be keen on allowing such an influential offshore centre to exist on its doorstep, and that if that was indeed the case then being such an offshore financial centre could be particularly lucrative. Coppola does admit to being amazed that she is writing such a sentiment, as her conclusion is that a new international role for London may not be what many Leave voters wanted but is what they will get. The issue is whether that vision is something positive or negative.

Regular readers will not be surprised to hear that this author believes it will not be overly positive. The reasons for this are many, but there are two that stand out. The prospect of London becoming an offshore financial centre leads one to believe that there will be a small number of people, relatively speaking, who will do very well from that arrangement, but that the general public certainly will not. The very politicians who advocate for such a role for London have stakes in such a scenario, with some even leading investment vehicles that will stand to make fortunes from an offshore status. The second is that this offshore status sounds exotic and exciting, but may be seen as a euphemism for a regulatory race-to-the-bottom. In reducing the regulatory restraints imposed on the market, as would surely be the case in the name of maximising the potential of this offshore status, the very fabric of this market-centric society becomes extraordinarily vulnerable. London is already regarded as one of the centres for money laundering and financial misdeeds, and this degeneration in standards will only make things worse. It is important that this is remembered and that hubris, based upon riches the vast majority will never see, is not allowed to triumph.

Keywords – European Banking Authority, UK, EU, Brexit, @finregmatters