Not for the first time, a piece of financial regulation with a “made in Brussels” label is causing a stir in the City.
Some bankers and lawyers in London’s financial district are upset about the market abuse directive, which aims to create a European Union-wide regime for preventing and detecting misdeeds such as insider trading and manipulation of financial markets.
The government, which recently put forward legislation to implement the EU law in Britain, has decided the UK will retain its existing rules relating to certain offences and the markets covered by the regime. In particular, those rules that concern the definition and abuse of insider information and behaviour constituting market manipulation promise to be tougher than the standards set by Brussels.
Such “super-equivalence”, as it is known in the Treasury and Financial Services Authority, is by nature controversial. It raises the spectre of “gold plating” – the practice of pursuing perfectionism when introducing a measure while neglecting the burdens imposed on users. And sure enough, high among the complaints from the banking and legal communities is a charge that separate UK standards will impose extra costs. Other concerns are that the UK approach will confuse the public and market participants and could undermine the EU’s goal of an integrated market for financial services.
This newspaper is by vocation hostile to gold plating. But the worries expressed about the market abuse directive appear overdone.
It is more likely that the UK approach will maintain in place a regime that has a high international reputation and has helped secure London’s position as Europe’s premier financial centre. Retaining rules introduced only a few years ago under the UK’s Financial Services and Markets Act will also limit the extent that securities firms, banks, investment exchanges and listed companies will have to adapt to the directive.
Nor, in this case, is there a risk of Britain contravening European law by melding its existing rules with the EU measure. The directive is not a “maximum harmonisation” law. It allows super-equivalence by setting minimum rather than maximum standards.