The U.K. government’s push to shield its bank-structure rules from a European Union overhaul suffered a setback as lawyers for the bloc said flexibility built into a draft proposal may breach EU law.
Michel Barnier, the EU’s financial-services chief, proposed in January to ban about 30 of the bloc’s largest banks from proprietary trading and to hand regulators the power to split them up. The U.K. sought and obtained caveats in the plan that allow the government in London to press ahead with implementing its own measures, known as the Vickers rules.
Barnier’s plan to allow the European Commission to grant exemptions for countries already putting tough measures in place is too sweeping and arbitrary to comply with the EU’s basic law, according to a written opinion by the legal service of the Council of the European Union, which represents national governments. “This appears in direct contradiction with the principle of supremacy of EU law,” according to the June 16 opinion obtained by Bloomberg News.
The proposals should be redrafted either to scale back the commission’s power to grant carve outs or to make key provisions more flexible, according to the legal opinion, which was prepared for a meeting of national officials today.
The legal complications add to the welter of obstacles and resistance confronting Barnier’s bank-structure proposals. France and Germany are among countries that have taken issue with parts of the blueprint, concerned that it could force them to ramp up national plans and make banks move more of their trading activities into separate units.
Chantal Hughes, a spokeswoman for Barnier, said the commission takes note of the opinion and will study it carefully. “We remain confident that our proposal is legally sound and hope to see negotiations progress quickly in coming months,” she said.
The Financial Times reported on the opinion late yesterday.
The draft law would requires approval from national governments and the European Parliament to take effect. Diplomats from the EU’s 28 member states are still at an early stage of their work on the text. The parliament has yet to begin its scrutiny of the plans.
Options set out in the legal service opinion include that the proposals could be rewritten in way requiring “less intensive approximation” of national rules, echoing French and German calls for a more flexible approach.
“We can’t regulate everything in detail, abstractly and universally, but that we give the supervisor much more the instruments and the discretion to enable it to take the right decisions in every particular case,” German Finance Minister Wolfgang Schaeuble said earlier this year.