By John Geddie
LONDON (Reuters) - Britain's capital markets would probably face the same degree of regulation even if voters opt leave the European Union in a referendum in June this year, banking lobby group ICMA said.
The group, often a critic of the regulatory crackdown on markets since the financial crisis, said Britain would need to comply with EU oversight to obtain the best terms of access to the single market after Brexit.
"Leaving the EU would not be expected to lead to less capital markets regulation in the UK," said Paul Richards of the International Capital Market Association, writing in the group's quarterly report published on Friday.
Some hedge funds arguing for Brexit are hoping it would lead to a lighter-touch regulatory environment, for example on pay.
Richards said Britain would face pressure to remain within the framework for capital markets regulation set at global level by the G20, while Britain's regulators have in recent years been some of the most prominent in promoting strict regulation.
The paper, detailing the wide-ranging implications for capital markets in Britain, said there are advantages in having the EU negotiate trade agreements on behalf of Britain because it is a market of around 500 million people.
Besides, Britain has not been directly involved in negotiating trade deals for over 40 years and would need to train officials or hire experts to conduct negotiations.
In a sign of how tortuous the process of reaching "equivalence" between two regulatory regimes can be, the European Union and the United States agreed in February to accept each other's derivatives rules after more than three years of work.
ICMA said the City of London's position as a trading center for EU business might also change as a result of Brexit.
"It is not clear to what extent it would be possible for euro market infrastructure to remain in the UK if the UK decided to leave the EU," Richards said.
The European Central Bank will push hard for the trade of trillions of euros of derivatives that now occurs in London to move on to its patch in the event of Brexit.
It has already tried to assert its authority, insisting that clearing houses that process euro derivative trades should be based in the 19-nation currency bloc. Britain mounted a legal challenge to defend its financial sector and won at the EU's second-highest court last year.
But ICMA said if Britain were to leave the EU "the basis for making this judgment could change."