Why the UK’s title as the financial centre of the world is under threat from EU legislation?

London is one of the main financial centres in the world for foreign exchange trading where the Euro bonus are widely used for this purpose.

The current agreements between the UK and the EU related to trade, commerce, competitiveness, banking supervision or tax regulations may require a revision to solve some loopholes between these partners. Since the in-out referendum proposal to leave the EU before 2017 is being debated, some problems between the UK and the EU have been revealed.

New regulations from the EU could affect the financial system established in the UK, but how? Opinions are divided between the Euro skeptics and the pro-European about the consequences of the UK versus EU relationship would have after the negotiation agreements.

Banking union

The financial and economic crisis has unveiled the Euro weaknesses as a single currency. Therefore, the Eurozone Central Bank set a common banking supervisor to monitor the major banks in the threshold of the single currency.

In contrast, the European Banking Authority which regulates also UK banks could marginalized the UK “by setting liquidity and capital requirements for the biggest banks in the Euro area, will favour those institutions at the cost of the UK’s,” according to a Quartz analysis made by Lily Kuo (17 May, 2013). It is also added that a negotiation that took place last year included a clause about the no-marginalization of any EU country under this union. Moreover, a voting system will be introduced for all EU members about the banking union system.

Tax regulation

The Financial Transaction Tax (FTT), the so-called Tobin Tax, has been imposed to 11 Eurozone countries to pursue a levy on financial transactions. The UK abstained in vote although they are also tackling issues of tax avoidance among some companies established in this country.

This tax could end up adding a small change in the trade between the UK and the Eurozone countries, although it could also attract some more businesses to the UK. The future of this strategy cannot be foreseen yet.

UK vs EU relationship

It is not clear whether the exit of the UK from the EU would bring a better situation, but the uncertainty could have negative consequences for the British market. Also, the Scottish referendum in 2014 would have as a main point the EU situation. If they want to belong to the EU they could have a better chance leaving the UK and apply later to become an European membership, rather than staying in the UK and later being dragged out of the EU. This is also an important aspect to consider here.

Perhaps the dilemma is not regarding the new regulation of the EU, but the deteriorating relationship between the UK and the EU. Things can improve, however extreme positions might damage both financial markets rather than gaining any benefits, and amid the economic situation, the consequences must be well analysed before talking any misstep.