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Europe's Regulatory Harmony At Risk - A Threat To Wealth?

Valerie Mariatte-Wood, 10 October 2019


A provider of wealth structuring and management solutions across national borders considers the changing regulatory landscape in Europe, and argues that practitioners must keep making the case for harmonisation.

There have been moves to harmonise financial regulations in different European countries over recent years – including those not in the European Union. Depending on one’s viewpoint, this has meant a reduction in the complexity and burdens of complying with rules in different countries when doing cross-border business, but for some, also a general increase in the regulatory cost.

Harmonisation is not the same as a mutual recognition of rules (“you respect my laws and I’ll recognise yours”) which can be the basis for trade in goods and services between nations with distinctive rules of their own. The debate about the UK’s push to leave the EU clearly affects the degree of harmonisation that there is, even suggesting a move away from this trend. But it is not all about Brexit – Switzerland, which has been in talks with the EU about a framework pact to replace more than a hundred of its bi-lateral treaties, can butt heads with Brussels over certain rules. 

Cross-border harmony – or disharmony – is a major concern for wealth managers handling areas such as tax, estate transfer and property rights. Some firms specialise in trying to lubricate the wheels of this process, so to speak. One such business is Luxembourg/US-based Lombard International Assurance. Here, its regulatory affairs director, Valerie Mariatte-Wood, considers where Europe is heading over harmonisation and how wealth managers and clients should act. 

The editors of this news service are pleased to share these views; the usual disclaimers apply. To comment, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

Europe has a legacy as a hub of financial innovation, from Renaissance merchant Venice, across the birth of the first Stock Exchange in Amsterdam in 1602, to the modern-day hubs of London, Luxembourg, Ireland and Switzerland. Throughout this history, Europe’s strong economies have played a key role. In recent years, however, it has been the steady growth of a harmonised financial framework that has helped Europe sustain its leading position in the global financial market. The pre-eminence of our wealth management industry on the global stage depends on this harmony to keep attracting the world’s wealthy investors. 

Since the early 1990s, Europe’s financial services industry has grown increasingly connected. This began in earnest with the Third Life Directive in 1992 introducing a cross-border financial framework which aimed to leverage the single market more effectively for financial services companies.

For the first time, financial services companies were able to compete for clients across Europe without the need to establish a local presence. Unencumbered by prohibitive costs and spurred by competition, companies across Europe experienced rapid growth and innovation. 

Similarly, this directive offered an opportunity for European countries to specialise in financial services, especially smaller countries that could be agile in their adoption of competitive policies. Previously, less diversified economies such as Luxembourg, Monaco and Lichtenstein enjoyed astronomic growth in spite of having local markets a fraction the size of their neighbours.

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