Trump Regulation Rollback May Threaten U.S. Firms' EU Access

  • Dombrovskis says EU to monitor review of Dodd-Frank rules
  • EU will assess ‘practical outcomes’ of U.S. policy overhaul

ESMA Says EU Third-Country Rules Must Be Overhauled

President Donald Trump’s planned rollback of financial rules could undermine years of trans-Atlantic negotiations and threaten U.S. firms’ access to European Union capital markets, according to the bloc’s financial-services policy chief.

Valdis Dombrovskis, a vice president of the European Commission, said on Tuesday that the EU would look at the “practical outcomes” of Trump’s review of financial rules. If major changes are made, that would force the bloc to reassess the strength of U.S. market oversight and possibly reconsider so-called equivalence decisions that grant privileged market access.

Valdis Dombrovskis

Photographer: Chris Ratcliffe/Bloomberg

Companies like Chicago-based CME Group Inc., one of the world’s largest clearinghouses for derivatives, rely on such equivalence determinations to conduct business with clients in Europe.

“Decisions on equivalence are based on the assumption that rules in a third-country jurisdiction are achieving the same regulatory or supervisory outcomes as EU rules,” Dombrovskis told lawmakers in Brussels. “If this changes, it also makes us look anew at our equivalence decisions.”

The comments are one of the strongest signs that Trump’s deregulatory push could have global implications and throw into question efforts since the 2008 crisis to coordinate market oversight around the world. Regulators have spent most of the last decade imposing tougher rules on banks, attempting to limit the potential for firms to exploit differences between jurisdictions.

Brexit Vote

Regulators have also struggled to align rules, however, taking years in some cases to agree on the strength of each other’s rules. It took about four years of difficult negotiations for the EU and the Commodity Futures Trading Commission to come to an agreement on equivalence between their clearinghouse regulations for derivatives.

The EU and the Securities and Exchange Commission are still negotiating a separate equivalence decision for clearinghouses for stock options and other securities. EU banks’ trades at such clearinghouses would be hit with billions of dollars in additional costs unless the matter is resolved.

Europe’s equivalence decisions affect a wide array of business, including accounting standards, credit ratings, price benchmarks and even the logging industry. The commission is in the process of debating its process for granting equivalence determinations, which have taken on new importance also since Britain’s vote to leave the EU last year.

Alarm Bells

Since Trump’s inauguration, senior European regulators have cautioned the U.S. against easing regulations on the industry. Dombrovskis has joined European Central Bank President Mario Draghi and Bank of England Prudential Regulation Authority head Sam Woods this month in sounding alarm bells about such moves.

“The last thing we need at this point in time is a relaxation in regulation,” Draghi said on Feb. 6. “Frankly I don’t see any reason to relax the present regulatory stance which has produced a stronger banking and financial services industry than before the crisis.”

Erste Group Bank AG Chief Executive Officer Andreas Treichl said he expects U.S. and EU banking regulation to diverge under Trump.

“I don’t think Trump will fail; I believe that if he goes on like this, he will prevail” in rolling back financial regulation, Treichl said in Vienna on Tuesday. “I also believe that the EU won’t be moved by this until the consequences are so dramatic that they have no choice but to react.”

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