The European Commission is set to propose on Wednesday stricter controls of foreign financial firms that do business in the EU, a move that would extend European regulators’ supervision over London, Europe’s biggest financial center, after Britain leaves the bloc.

The proposal would cover all financial industries that are allowed to operate in the EU under the so-called equivalence regime, a system whereby Brussels grants access to non-EU firms that comply with rules similar to those in the bloc.

After Brexit, equivalence is seen as the most likely framework for regulating the activities in the EU of British-based firms, although the country’s financial services sector is pushing for an easier access to the continent’s internal market.

Under the draft legislative proposal, seen by Reuters, EU supervisors would increase their monitoring powers for all foreign financial services covered by equivalence decisions.

This would complement earlier moves to strengthen checks on specific activities, like clearing, that infuriated Britain .

EU regulators would have to regularly monitor foreign financial regulatory regimes and report to the European Commission about possible developments that could require changes or a quick revocation of an equivalence decision.

At the moment regular checks are expected only for some financial service industries.

Regulators would monitor “regulatory, supervisory, enforcement and market developments” in foreign countries with financial sector regulations equivalent to the EU’s.

EU supervisory authorities could also in some cases request “on-site inspections” as part of coordinated monitoring with foreign regulators, the draft document said.

EU watchdogs will be given more staff and money to fulfill these new tasks, the proposal said.

The Paris-based European Securities and Markets Authority will receive more resources because it will have to monitor more foreign regulatory regimes.

The EU has so far adopted decisions that could allow equivalence status for a variety of eligible foreign sectors ranging from credit rating agencies and accounting to investment firms and insurance.

The United States, China, Japan, Canada and South Korea are among the countries having reached equivalence agreements with the EU for specific financial sectors.

The Commission’s legislative proposal, expected to be published on Wednesday, will need the approval of EU states and European lawmakers.

The draft document also set aside earlier ideas for merging the three EU financial sector regulators, which monitor markets, insurers and banks, amid the EU states’ wrangling over which member nation would host one of the three, the European Banking Authority, when it moves from London after Brexit.

Under the proposal, the supervisors would see their powers strengthened to monitor EU firms, from funds and insurers to financial technology developers.

Their increased costs will in part be met by the industry. (Reporting by Francesco Guarascio; Editing by Greg Mahlich)

Topics Legislation Europe