Bank lobby urges EU not to leave Britain out of capital markets union

A European Union flag is waved over a statue of former Prime Minister Winston Churchill as demonstrators protest during a "March for Europe" against the Brexit vote result earlier in the year, in London, Britain

By John Geddie

FRANKFURT (Reuters) – Global bank lobby group ICMA urged the European Union on Thursday to keep Britain in its plans for a capital markets union, saying a failure to do so would leave the project “substantially diminished”.

The plea comes after EU leaders sought to speed up the scheme, which aims to make it easier for companies to raise funds through bonds and equities. Britain could be left out after it voted to leave the EU in June.

“A way needs to be found post-Brexit for Europe to bring the UK into the CMU (capital markets union) if the initiative is to achieve the ambition that inspired it in the beginning and for it not to be substantially diminished,” Martin Scheck, chief executive of the International Capital Market Association (ICMA), said at an industry conference in Frankfurt.

The CMU project has made slow progress since it was launched last year, but Brussels is determined to plow on after the Brexit vote removed a major opponent of greater centralization of markets supervision.

And while leaving out the continent’s biggest financial center may have once seemed implausible, not all of the mainly-German delegates at the conference were convinced that its exclusion would impact the project’s success.

“Until recently I would have thought a capital markets union without the UK can’t really work,” said Gunnar Stangl, head of regulatory coordination at Commerzbank.

“But maybe having this little village out of the main continent might actually serve as a beacon for alternative systems and actually influence indirectly regulatory trends in the capital markets, more than it would have if it (CMU) had been watered down to a one versus 27 framework.”

The burden of regulation brought in since the financial crisis to keep tabs on Europe’s banks was a constant theme of the conference, with ICMA’s Scheck singling out new markets abuse regulation (MAR) as a source of concern for bond markets.

Scheck said a lack of understanding on how to put the laws passed in July into practice was “disrupting the operation” of new bond sales.

Debt bankers have said the law was already making investors reluctant to share information with investment banks over their interest in bond issues, which they say will lead to a rise in bond sales getting canceled.

“We have been working with our members, law firms and the authorities to try and give market guidance but the interpretation of the new law in practice is still very unclear and it is disrupting the operation of the primary debt markets,” said Scheck.

“We know just how important it is for regulators to provide clear guidance in good time for market participants to prep themselves, and clearly this did not happen this time which is very concerning.”

(Reporting by John Geddie; Editing by Dhara Ranasinghe and Mark Potter)