“Weaponizing” Europe’s financial services, with an eye on the UK after Brexit?
In recent days, the stock exchanges of Switzerland, the fourth-largest European market by value-traded, were dealt what seemed at first like a hammer blow: Brussels stripped them of financial equivalence with the European Union after a previous trade agreement between the two sides expired, with the result that traders from the EU’s 28 member states are no longer allowed to trade shares in Swiss companies if those shares are also traded in the EU.
That applies to virtually all heavyweight Swiss companies such as Nestlé, Roche and Novartis, whose shares are included in the portfolio of just about every major European investor.
The EU’s long-telegraphed decision to let Switzerland’s financial market equivalence expire was intended to coerce Bern into signing a comprehensive framework agreement with Brussels to replace the 120 bilateral trade agreements negotiated between the two states since 1992. The new agreement, under which the Swiss would adopt many EU rules automatically, has been under negotiation for years, was signed by the Swiss government but roundly rejected by the Swiss parliament and cantons.
The EU’s ban on financial equivalency for Switzerland also has another purpose: to send a stark warning to the British government of the risks a no-deal Brexit could pose to the UK’s financial markets. Put simply, if the UK leaves the EU without an agreement on Oct. 31, which is looking increasingly likely, and UK stock exchanges lose financial equivalency, prompting a tit-for-tat response from London, any stocks that are dual-traded would have to be traded in their respective jurisdiction.
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