Reregulating Capital Markets in Europe Post-Brexit

In the aftermaths of the global financial crisis and the European sovereign debt crisis, the European Union (EU) has adopted a new strategy and measures to increase the size and role of capital markets within the Single Market, aiming at unlocking funding for economic recovery and creating a ‘deeper and fairer internal market’. Under the Capital Markets Union (CMU) slogan, the EU put forward two Action Plans (2015, 2020) which set out an ambitious top-down and bottom-up reform agenda. Originally largely welcomed as a project most beneficial for the United Kingdom (UK) because of the country’s most developed European financial markets, EU actors have since the Brexit vote in 2016 argued that the UK’s exit from the EU and the Single Market would make the project even more important. Since then the access of the UK’s financial sector to the EU has been largely reduced to access under WTO trade rules for trade in financial services, plus some additional beneficial access via temporary, time-restricted equivalence rules. This paper analyses the particular challenges for CMU following Brexit and the EU’s strategic decision to increase independence from its former most prominent European financial center for financial stability reasons, the UK’s regulatory responses to regain competitiveness, and the potential impacts on the UK’s position as one of the two leading global financial centers, exploring the limitations of regulatory coordination and regulatory competition between the two regulatory spaces. In doing so, the paper will contribute to theoretical considerations about financial market (dis)integration and on the role of capital markets in contemporary advanced financial systems.