UK regulators ‘to protect London as Europe’s leading market place’

By Stewart Fleming

Date: 24/02/05

The UK government stands accused of trying to use financial market regulators to underpin London's position as Europe's leading financial market place and protect the London Stock Exchange (LSE) from the threatened takeover by Germany's Deutsche Börse or its Paris-based rival Euronext.

Karel Lannoo, chief executive of the Brussels-based Centre for European Policy Studies and one of the authors of a new analysis of the future of EU financial market regulation, says that recent moves by the British financial authorities may indicate an attempt to protect the LSE from takeover. In effect, the UK government could be resorting to regulatory approvals to defend a "national champion", a policy which the UK government regularly accuses its continental partners of adopting, Lannoo says.

Earlier this month the Financial Services Authority (FSA), Britain's integrated financial market regulator, published a statement by its chairman, Callum McCarthy, expressing misgivings about the long-term implications of bids for the LSE. Then the Office of Fair Trading, a UK competition authority, indicated that it would carry out the investigation of any competition policy issues raised by a deal rather than ask the EU competition watchdog in Brussels to do the job.

While claiming that the recent approval of the acquisition of the British bank Abbey National by Spain's Santander Central Hispano demonstrated "the reality of [the UK authorities'] openness to foreign acquisition", the FSA listed a succession of issues which would need to be satisfied to secure approval. These include whether or not the acquirer qualified under the catch-all "fit and proper person" requirement and whether it had "satisfactory clearing and settlement arrangements". Most controversially however, it then went on to argue that "it cannot be certain that in the long term the new entity would choose to maintain its activities as an entity located and regulated in the UK".

It suggested that "stakeholders who have an interest in the future of European financial markets will want to consider carefully" the implications of any move by a merged entity to another EU regulatory jurisdiction, something which could happen under a single market " passport". It said that such a move would raise issues of the corporate governance of UK-listed firms in general, including, for example, "the current requirements for shareholder approval of a significant transaction" and the applicability of the UK takeover code to bids and deals involving listed companies.

Some EU securities market analysts say that they see the stance being adopted by the FSA as undermining efforts to encourage greater regulatory co-operation and convergence in the Union. This is potentially damaging to the creation of a single financial market, they argue. At the same time they warn that the UK position is part of an effort to ensure that London's financial market regulatory structures are not weakened by any LSE take-over, not so much to protect the LSE as such, but to protect the City of London's position as Europe's dominant financial market place. "The UK [authorities] think that their regulators are the best," says Lannoo.

• Stewart Fleming is a freelance journalist based in Brussels.

Article reports that the UK government stood accused of trying to use financial market regulators to underpin London's position as Europe's leading financial market place and protect the London Stock Exchange (LSE) from the threatened takeover by Germany's Deutsche Börse or its Paris-based rival Euronext.

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