The U.K.’s bid to overturn a European Union agency’s power to ban short selling faces a test tomorrow when an EU judge gives his view on part of Britain’s turf war with the bloc’s financial regulators.
An adviser to the EU Court of Justice will issue a non-binding opinion on whether the European Securities and Markets Authority’s decision-making ability goes beyond limits allowed under the bloc’s treaties.
The short-selling skirmish is one of several legal U.K. challenges against EU financial regulations at the EU courts. Britain’s opposition to some rules affecting the City of London has prompted warnings from EU officials that it can’t pick and choose the terms of its relationship with the bloc.
“Previous decisions of the EU court have struck down attempts to clothe an administrative agency with broad law-making powers,” Michael Wainwright, a partner at Eversheds LLP in London, said in an e-mail. “This case raises important questions as to how those decisions apply to ESMA and the other new EU financial supervisory authorities.” Though non-binding on the Luxembourg-based court, the opinion “will provide an insight into how the U.K.’s arguments have been received.”
The EU’s top court follows the advice of its advocates general in a majority of cases. Rulings follow opinions about six months later.
“The U.K. supports the Short Selling Regulation, and has engaged constructively with the Commission, ESMA and other member states,” the U.K. Treasury said in an e-mailed statement. “Our legal challenge does not change this. We are seeking legal clarity on how powers given to ESMA to restrict or ban short selling sit with the principles established under the existing case law.”
While Prime Minister David Cameron has promised a referendum on EU membership by the end of 2017, this has failed to quell calls from members of his Conservative Party for Britain’s European destiny to be put to the people sooner.
Michel Barnier, the EU’s financial services chief and architect of draft laws for the industry, has warned Britain that it must accept EU financial regulations in exchange for access to the bloc’s single market.
The U.K. has often found itself on the defensive in EU discussions on financial regulation. The nation, which lacks a veto on financial laws, was the sole dissenting voice in March opposing a deal to ban bonuses more than twice fixed pay.
Britain’s Chancellor of the Exchequer George Osborne has said that plans being discussed by 11 other EU nations for a common financial transactions tax were “unlawfully extraterritorial” and “poorly designed.” The country started a legal challenge over the draft measures in April.
The U.K. is also suing the European Central Bank over policies that it says push clearing of some derivatives away from London and into the euro area, and has grappled with other states on topics ranging from oversight of hedge funds to how much power the Brussels-based European Commission should have to police bank capital.
Chantal Hughes, a spokeswoman for Barnier, declined to comment on the short-selling opinion.
The case is: C-270/12, United Kingdom of Great Britain and Northern Ireland v. Council of the European Union, European Parliament.