Barnier fails to reassure City over 'catastrophic' appointment

The European Union's appointment of Michel Barnier as bank regulation supremo has left City firms reeling, despite his attempts to calm fears over London's importance yesterday.

The incoming EU Internal Market Commissioner told French radio: "I know the importance of the City. I know the importance of this major financial centre for growth in Britain and for all of Europe's economy."

He added that "I have to work in Europe's interest to draw lessons from the crisis, including in the City's interest to support this financial centre, as well as others including Frankfurt and Paris."

Yet the former French foreign minister's comments were not enough to soothe financial groups in the UK, who fear the City will be disproportionately hit by stricter regulation for banking, hedge funds and derivatives.

David Buik of BGC Partners said: "This country will rue the day that it has allowed the EU to regulate the UK's banking sector. The culture and ethos of Europe's banking sector is totally different from the UK's." He added that "Barnier's appointment could be catastrophic for the City."

Simon Walker, the head of the private equity trade body BVCA, said: "There are concerns from private equity and across the whole financial services sector. We're very worried that Britain could be losing influence in an area that disproportionately affects us. It clearly weakens our hand."

Mr Barnier was unveiled on Friday by European Commission President Jose Manuel Barroso as part of the executive's new line-up. Jon Moulton, who recently set up Better Capital after leaving Alchemy Partners, said of the appointment: "One couldn't regard it as anything other than a concerning development." And the UK's Conservative leader in Brussels, Timothy Kirkhope, said: "The loss of an Anglo-Saxon voice in the commission's top economic team is of concern, given the recent spate of over-prescriptive economic and financial legislation to come from Brussels".

The French President, Nicolas Sarkozy, said the "British are the big losers" following the appointment. "It's not that the British were hesitant, they were absolutely against it," he added.