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A plan by the EU to forge closer ties with three small countries within its borders risks causing significant financial damage to European consumers, the union’s own regulators have warned.
In a dramatic intervention that threatens to derail trade talks with Andorra, Monaco and San Marino just months before they are due to conclude, Europe’s top financial regulators said a closer relationship with the trio could open the backdoor for illicit money and make it easier due to the lax oversight, predatory financial firms are attacking people in the EU.
The three nations, with a combined population of 150,000 and bordered by France, Italy and Spain, are not EU members but have been negotiating with the European Commission since 2015 over deeper economic ties that would give them access to the single market.
The heads of three EU regulators, which oversee Europe’s banks, financial markets, insurance and pensions sectors, warned that the trio “have complied with less stringent financial regulations in the past” and “could be vulnerable to money laundering and other illegal activities”.
In their clearly worded letter to the Commission, which POLITICO received, they said companies may be tempted to locate in the so-called micro-states to deliberately benefit from tighter financial standards, which entail “significant risks for consumers”. They would sell their wares all over the block.
Any backdoor for financial services into the EU would undermine years of regulatory efforts to tighten oversight of financial firms. Smaller countries within the EU, such as Cyprus, are under intense pressure to be tougher. The bloc also introduces a crackdown on risky cross-border digital sales.
Outside the EU borders, international scandals such as the Panama Papers have led to a global crackdown on money laundering and tax avoidance. Yet among the three countries, Monaco, for example, has long had a reputation as a tax haven and playground for the world’s rich and famous.
“Proper control and security measures are essential to ensure we don’t let a Trojan horse through our gates,” said Paul Tang, a Dutch Socialist and Democrat MEP who deals with money laundering and tax laws. “When the European watchdogs issue a collective warning, we had better listen.”
Financial services are just part of the larger trade-barrier association agreements with the three countries that the Commission hoped to finalize by the end of the year. Aside from full membership, countries would have to follow some EU rules to benefit from the free movement of people, goods, services and capital.
In January, Commission Vice-President Maroš Šefčovič called an agreement with the three by 2024 “an ambitious but achievable goal and the priority of the Commission”. If an agreement cannot be reached before the European elections next June, there is a risk that the plans will fall by the wayside.
The government of San Marino read the warnings “with astonishment,” said a spokesman for the country’s foreign ministry. Problems in the past would have “nothing to do with the virtuous process of the three states, which for years have been implementing European regulations and complying with the main mechanisms promoting fiscal and financial cooperation between states with an effort equivalent to that of an EU member.” Conditions.”
A spokesman for the commission said it had answered “all letters in due course”.
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