On Tuesday 26 February the European Union completed the political trilogues and agreed new rules for investment firms. The agreement of this dossier is an important step in helping deliver a well-regulated financial system, by ensuring a coherent approach to the provision of bank-like services across the EU as well as delivering consistent prudential regulation.

As the Commission set out in its press release of the agreement, a key aim is to help to improve investment flows across the EU and delivering better protection for investors. This is something that is vital in an ever more inter-connected financial services world. In addition to EU investment flows, non-EU investment plays a crucial role for EU businesses in delivering better choice and price for users of financial services. 

However, there are still details to be finalised which could have the unintended consequence of restricting access to non-EU capital for customers and consumers in the EU. 

Of particular concern is that the new rules may restrict or make unduly burdensome access for non-EU firms doing business into the EU on a cross-border basis. The agreed text stipulates that additional requirements may be imposed when a third country firm (i.e. a non-EU investment firm) seeks to provide services critical to supporting their EU-based clients. Those that may face these additional requirements are the important services of ?Dealing on own account? and ?Underwriting of financial instruments and/or placing of financial instruments on a firm commitment basis?.

This could mean that (yet to be defined) additional requirements could be imposed on a non-EU firm before it can provide services for an EU business.

Examples where EU businesses frequently seek these kind of services from non-EU firms include:

• EU exporters risk management: to risk manage a supply chain for those with international cross-border contracts in a different currency, such as the yen or dollar, to the one stipulated in the delivery contract EU exporters will often use non-EU providers. This is usual practice for manufacturers to ensure that they are not adversely impacted by currency fluctuations and potential disruption to that supply chain.
• EU pension fund portfolio management: an EU based pension fund that wishes to sell a long-held large Asian share investment to ensure its portfolio is properly managed to deliver good investment returns for the retirement of its customers. A way to do this for a large shareholding would be to seek out buyers prepared to pay the best price via a competitive auction sale. As these are Asian shares, the likely best buyer will include Asian investment firms who would be ?dealing on own account?. 

These additional requirements will now be defined by the European Securities and Markets Authority (ESMA). Any rules must be clearly defined and objectively implemented and should avoid restricting or making unduly burdensome access to important services from non-EU firms.

As can be seen from the examples above, it is important for customers and consumers in the EU that access to non-EU capital is not restricted. Otherwise there may be unintended consequences that, contrary to the stated aim of these rules, have the effect of reducing the options and increasing price for consumers, sovereigns and customers across the EU.