At a meeting last week, the French government objected to the 'Vickers compromise' – a legal framework that has been put forward by the UK as an alternative to reforms being proposed across the rest of the European Union, the Financial Times said.
Under the Banking Reform Act, based on the Vickers proposals, UK banks are required to formally separate their investment and retail banking operations from 1 January 2019.
Affected banks have to separate their core functions from the "activities associated with trading and financial interconnectedness" of the wider banking group into a legally and operationally distinct entity, which will not be able to hold or own the capital of other non-ring fenced entities within the group.
The French government said this week that the UK plans are illegal and will damage the common market, the Financial Times said.
Other countries also expressed concern over the cross-border impact of a different UK regime, the report said.
Banking law expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said: “Given the large number of ‘unknown unknowns’ which are becoming apparent to UK banks with implementing the Vickers reforms, the prospect of further European led bank restructuring will be almost unpalatable. This will be particularly the case after the original derogation afforded to them by the European Commission. It is small wonder UK banks have this week taken it upon themselves to commission a review of the UK’s competitiveness as a banking centre.”
The UK's Financial Conduct Authority (FCA) has confirmed the scope of formal review of competition between banks that provide investment and corporate banking services.