Policy brief

Making the best of Brexit for the EU27 financial system

The EU27 needs to upgrade its financial surveillance architecture to minimise the financial market fragmentation resulting from Brexit and the corresp

Publishing date
08 February 2017

The issue

The United Kingdom’s exit from the European Union creates an opportunity for the remaining EU27 to accelerate the development of its financial markets and to increase its resilience against shocks. Equally, Brexit involves risks for market integrity and stability, because the EU including the UK has been crucially dependent on the Bank of England and the UK Financial Conduct Authority for oversight of its wholesale markets. Without the UK, the EU27 must swiftly upgrade its capacity to ensure market integrity and financial stability. Furthermore, losing even partial access to the efficient London financial centre could entail a loss of efficiency for the EU27 economy, especially if financial developments inside the EU27 remain limited and uneven.

Policy challenge

The EU27 should upgrade its financial surveillance architecture to minimise the financial market fragmentation resulting from Brexit and the corresponding increase in borrowing costs for firms. While some decline in cross-Channel integration is unavoidable, the EU27 should move quickly towards a fully integrated single market for financial services, with harmonised rules and consistent supervision and enforcement. Policy initiatives need to include governance reform and greater empowerment of the European Securities and Markets Authority, further steps towards banking union and third-country regimes for the supervision of market infrastructure firms (eg clearing houses), similar to those in the United States. With policy integration, there will be less need for financial firms to move to one location, reducing the pressure for all facilities (infrastructure, offices with trading floors, residential housing) to be in one city.

About the authors

  • André Sapir

    André Sapir, a Belgian citizen, is Senior Fellow at Bruegel. He is also University Professor at the Université libre de Bruxelles (ULB) and Research Fellow of the London-based Centre for Economic Policy Research.

    Between 1990 and 2004, he worked for the European Commission, first as Economic Advisor to the Director-General for Economic and Financial Affairs, and then as Principal Economic Advisor to President Prodi, also heading his Economic Advisory Group. In 2004, he published 'An Agenda for a Growing Europe', a report to the president of the Commission by a group of independent experts that is known as the Sapir report. After leaving the Commission, he first served as External Member of President Barroso’s Economic Advisory Group and then as Member of the General Board (and Chair of the Advisory Scientific Committee) of the European Systemic Risk Board based at the European Central Bank in Frankfurt.

    André has written extensively on European integration, international trade, and globalisation. He holds a PhD in economics from the Johns Hopkins University in Baltimore, where he worked under the supervision of Béla Balassa. He was elected Member of the Academia Europaea and of the Royal Academy of Belgium for Science and the Arts.

  • Nicolas Véron

    Nicolas Véron is a senior fellow at Bruegel and at the Peterson Institute for International Economics in Washington, DC. His research is mostly about financial systems and financial reform around the world, including global financial regulatory initiatives and current developments in the European Union. He was a cofounder of Bruegel starting in 2002, initially focusing on Bruegel’s design, operational start-up and development, then on policy research since 2006-07. He joined the Peterson Institute in 2009 and divides his time between the US and Europe.

    Véron has authored or co-authored numerous policy papers that include banking supervision and crisis management, financial reporting, the Eurozone policy framework, and economic nationalism. He has testified repeatedly in front of committees of the European Parliament, national parliaments in several EU member states, and US Congress. His publications also include Smoke & Mirrors, Inc.: Accounting for Capitalism, a book on accounting standards and practices (Cornell University Press, 2006), and several books in French.

    His prior experience includes working for Saint-Gobain in Berlin and Rothschilds in Paris in the early 1990s; economic aide to the Prefect in Lille (1995-97); corporate adviser to France’s Labour Minister (1997-2000); and chief financial officer of MultiMania / Lycos France, a publicly-listed online media company (2000-2002). From 2002 to 2009 he also operated an independent Paris-based financial consultancy.

    Véron is a board member of the derivatives arm (Global Trade Repository) of the Depositary Trust and Clearing Corporation (DTCC), a financial infrastructure company that operates globally on a not-for-profit basis. A French citizen born in 1971, he has a quantitative background as a graduate from Ecole Polytechnique (1992) and Ecole Nationale Supérieure des Mines de Paris (1995). He is trilingual in English, French and Spanish, and has fluent understanding of German and Italian.

    In September 2012, Bloomberg Markets included Véron in its second annual 50 Most Influential list with reference to his early advocacy of European banking union.

     

  • Dirk Schoenmaker

    Dirk Schoenmaker is a Non-Resident Fellow at Bruegel. He is also a Professor of Banking and Finance at Rotterdam School of Management, Erasmus University Rotterdam and a Research Fellow at the Centre for European Policy Research (CEPR). He has published in the areas of sustainable finance, central banking, financial supervision and stability and European financial integration.

    Dirk is author of ‘Governance of International Banking: The Financial Trilemma’ (Oxford University Press) and co-author of the textbooks ‘Financial Markets and Institutions: A European perspective’ (Cambridge University Press) and ‘Principles of Sustainable Finance’ (Oxford University Press). He earned his PhD in economics at the London School of Economics.

    Before joining RSM, Dirk was Dean of the Duisenberg school of finance from 2009 to 2015. From 1998 to 2008, he served at the Netherlands Ministry of Finance. In the 1990s, he served at the Bank of England. He is a regular consultant for the IMF, the OECD and the European Commission.

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