Charles Canonne is financial attaché at the EU delegation to the UK. He has been in the position since April 2020. He talks about his job, the UK’s plans to reform its financial services industry, and how the EU is seen in London.

What exactly is your role in the delegation? And what does a typical day look like for you?

I was seconded by DG FISMA to the European External Action Service, which is the diplomatic service of the European Union. Within the EU delegation, which is like an Embassy, I follow all financial services issues. A typical day would involve spending a lot of time outside the office to meet with local interlocutors, from the public and private sector, including with diplomats from other jurisdictions. I feel like I am both a researcher and a sales rep.  A ‘researcher’ because I’m there to monitor what’s going on in the UK – market developments, regulatory evolution and divergence etc. – to analyse and report as much information as possible to feed into our processes in Brussels and help us make informed decisions. And a ‘sales rep’ in the sense that I am also there to communicate our policies and promote what we’re doing. We have good experience to share, for example on crypto and sustainable finance, where we are progressing fast in the EU, and people are interested in hearing what we have to say. This is why we organised a public event on our strategy for crypto assets on 5 December. Apart from that, I also facilitate the network of EU financial diplomats in London. There are a lot of us and there is certainly a multiplier effect because we all do a bit of ‘researcher and sales rep’. We meet regularly and exchange information and our understanding of developments on the ground in the UK. Last but not least, my job is to facilitate any interaction that our Commissioner and Executive VP, as well as our colleagues at FISMA, may have with the UK authorities.

How do you see the evolution of the negotiations and the relationship between the EU and the UK? And does that have an effect on your work?

The referendum took place in 2016, but agreeing on our bilateral relations took years of negotiation, and now we have international law arrangements, in the form of a Withdrawal Agreement, and a Trade and Cooperation Agreement. One difficulty is that the UK is not implementing some of the key elements of the Trade and Cooperation Agreement, particularly with regard to the Ireland / Northern Ireland protocol. In this context, it has not yet been possible to activate the cooperation arrangements for financial services that ought to provide a structured space for dialogue. That does not mean that no contact at all takes place between the UK and the EU in finance, when necessary – for example coordination on sanctions is strong. In fact, the situation gives me, and my colleagues at the delegation, additional responsibility in keeping the EU appraised of UK developments and facilitating mutual understanding and interaction whenever possible and in the EU’s interest. I note that there are also important multilateral fora in the area of financial services, such as the Financial Stability Board, IOSCO, the Basel Committee and others.

The UK has said it intends to reform its financial services industry. What are your thoughts regarding these plans?

The UK government were clear about doing Brexit to regain control. So this is expected and normal, but we need to assess the implications for the EU in terms of risks, competitiveness, level play field etc. So from the beginning, the important question for FISMA was where the UK is going with its financial services rulebook. The difficulty is to disentangle announcements from substance or changes on the ground. In a little over three years, the UK has had five Chancellors. Already two of them have announced a ‘Big Bang 2.0’ of financial services – a reference to the Thatcher era of deregulation of the sector. They have launched a number of reforms, including on capital markets rules, capital requirements, Solvency II etc. The EU, too, is regularly reviewing its frameworks. You will notice that these reviews on both sides may be running in parallel, because they are triggered by review clauses inherited from EU legislation (MIFID, Solvency II) or follow an international agenda. For instance, the UK has just published its plans for implementing the ‘Basel III.1’ standards, whilst this is part of our banking package currently in negotiation. That does not mean that these reforms are identical to our own amendments but more often than not they pursue similar objectives, also in light of our common internationally agreed principles. There are also reforms that are UK-specific. Recent Government plans to review ring-fencing requirements and the senior manager regime have proven controversial because they are two key measures that the country had taken in its response to the 2008 financial crisis. In parallel, the UK Government wants to change the way it develops financial regulation in the future. A Financial Services Bill currently under negotiation largely delegates rulemaking to regulators (Bank of England, Financial Conduct Authority and Pensions Regulator) rather than legislators. It also takes a more systematic supervisory approach (as opposed to regulation based) by expanding the ability for regulators to adjust the calibration and oversight of some key elements of the rulebook, for example the post-trade transparency regime of the derivatives trading obligation. There are limits to this shift, and for example, the Government recently decided to retain in primary legislation certain elements of the Solvency II regime (namely the matching adjustment) which the regulator had wished to redesign. This is a delicate balance, and Government plans to introduce an ‘overrule power’ to impose certain outcomes onto regulators have proved controversial, with the Parliament warning against encroaching upon regulatory independence.

How do you interpret the decision to scrap the bankers’ bonus cap in this context?

This was a key measure announced in the September ‘mini budget’ and since then it has been confirmed. On one level, this purely reflects the fact that the UK was against the cap when they were inside the EU, and feel that there their senior managers regime is sufficient to address risk-taking in the financial sector. On another level, the decision to scrap the cap shows that, with finance a key sector of its economy, the UK is faced with an imperative to be able to compete with other international financial centres such as Hong Kong and New York. There are many other more substantial issues.

How do you think UK financial regulation might evolve in the future?

It’s an open question. On the one hand, the UK will have to address similar challenges as the EU, such as digitalisation and climate change. International standards will also play a cohesive role. But as the UK develops its own rules and we do the same, our frameworks may drift apart over time. For example, the UK has onshored the EU’s taxonomy in the area of sustainable finance, but has also asked an expert group for advice. The expert group recommended to broadly retain the EU approach. Of course, the Government may decide to take a different approach.

You said that part of your role is to communicate EU policies and promote what we’re doing. In your experience, how do individuals and businesses in London generally perceive the EU, in terms of innovation for instance?

Viewed from London, the EU is seen as showing the way in certain areas, such as sustainable finance and regulation of crypto-assets. On sustainable finance we have the EU Taxonomy, disclosure requirements, green bonds and benchmark and the International Platform. So there is clearly respect for what the EU is doing and an acknowledgement that it’s leading the way at a global level. On crypto, business here is very excited about the quick adoption in the EU of the Markets in Crypto-assets (MiCA) package, the existence of a passport and the balanced framework that strives to strike a balance between new business opportunities as well as consumer protection and market integrity. Some national initiatives in EU Member States are also being praised, for example the possibility to tokenise investment funds. That said, we also get some criticism, of course. Sometimes we may think it is unfair, for example when I hear that we do not take climate transition sufficiently into account, or that we neglect the need for global consensus on environmental, social, and governance (ESG) factors, or that our attempt to introduce balance in the clearing market hinders investment into the EU’s economy. I would argue that it is entirely normal that we look at each other’s regulatory developments and may take different views on the right approach.