MNI POLICY: EZ Markets/Banking Union Talks "Mired In Distrust"

By Luke Heighton

     FRANKFURT (MNI) - Talks over the eurozone's Capital Markets Union and the

completion of the Banking Union are being held up by "technical nit-picking,

with self-satisfaction from some, disparagement from others, and distrust on all

sides", the head of the Central Bank of France said Friday.

     However Paris stands ready to inherit London's role at the centre of the

global derivatives market as Europe restructures its financial system

post-Brexit, Francois Villeroy de Galhau added.

     Here are the key points from the speech in Paris:

     -- Banque de France analysis supports research by the ECB and the Bank of

England which did not identify any major risks to eurozone financial stability

from an orderly Brexit.

     -- In the event of a No-Deal Brexit, the clearing of interest rate

derivatives could represent a systemic risk owing to London's near monopoly

position in the sector. The Banque de France therefore supports the European

Commission's proposal to grant equivalence status to the UK's legislative

framework, but for "no more than a year or so".

     -- Brexit represents an opportunity to restructure the European financial

system into an "integrated polycentric network of financial centres, with

specializations based on areas of expertise." Paris is well qualified to become

the "market hub" of an "enhanced and extended clearing services offering for

interest rate derivatives."

     -- France must be ready to deal with situations where UK firms may not have

already transferred their activities. The Bank therefore favours the

introduction of a tailored transition regime that, for the run-off management of

contracts, allows UK firms to continue the activities they initiated under the

European passport, provided that they submit a liquidation plan to the ACPR.

     -- Although Europe is close to achieving the necessary single, harmonized

rulebook for the banking sector, the same cannot be said for the insurance

sector. It will therefore be necessary to strengthen the role of the European

supervisory authorities, while creating share infrastructures - following the

examples of T2S and TIPS - capable of offering services beyond the euro area.

     -- It is the responsibility of the EU insurance industry itself to prepare

for the consequences of the UK's loss of passporting rights, and the majority of

major players have done so. However, "we should keep an especially close eye on

the small- and medium-sized players, particularly the smaller investment firms,

as well as electronic money and payment institutions".

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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