The European Union's financial services policy chief urged U.S.President Donald Trump not to walk away from global financial rulesput in place since the crisis.

“We are sensitive to talk of unpicking financial legislationwhich applies carefully negotiated international standards andrules,” Valdis Dombrovskis, a vice president of the EuropeanCommission, said in London Friday.

Trump has vowed to roll back financial regulation, and sincetaking office he has begun to pull the U.S. out of internationalagreements such as the Trans-Pacific Partnership trade deal.

The U.S. has “every right to change its approach,” Dombrovskissaid, according to the text of a speech distributed by his officein advance. “But as friends and allies, Europe is entitled togently suggest international cooperation on financial governance isin everyone's interest.”

Dombrovskis's comments echo a warning earlier this week byEuropean Central Bank President Mario Draghi, who said that arollback of financial regulation is “the last thing we need at thispoint in time.” Draghi, while also defending Germany against U.S.claims that it's a currency manipulator, said that he doesn't seeany reason to relax rules meant to prevent a repeat of the 2008financial meltdown.

The Trump administration has demanded that regulators produce astudy on financial rules within 120 days as a first step towardunwinding safeguards put in place by Barack Obama. Regulations thatTrump plans to target include a ban on proprietary trading, arequirement that risky financial companies be subject to toughFederal Reserve oversight and rules for winding down failedbanks.

Sen. Pat Toomey has urged Fed Chair Janet Yellen to abolishstress tests of banks, arguing that they hamper lending, burdenbanks with unnecessary costs and hurt economic growth. Earlier,House Financial Services Committee vice chairman Patrick McHenrysaid the Fed and other regulators should halt talks overinternational agreements until Trump has a chance to review theirwork and replace top negotiators.

“It is difficult not to notice when the chair of the FederalReserve is criticized for her approach to negotiating internationalrule and standards, or when an American president talks about 'doing a big number' on Dodd-Frank,” Dombrovskis said.

Trump's transition has already stalled talks at the BaselCommittee on Banking Supervision, which is trying to wrap up workon the capital framework known as Basel III. The EU and U.S. are ina standoff over new measures meant to stop banks from gaming therules.

Regulatory Cooperation

Fractures in the regulatory landscape would expose financialcenters from London to Singapore to risks imported from places withless stringent rules, Dombrovskis said. Banks would also be temptedto engage in regulatory arbitrage, accumulating under-regulatedactivities and putting “the whole financial system at risk,” hesaid.

“Lax regulation in one country can create conditions forinadequate regulation and contagion throughout the world,” hesaid.

Dombrovskis also called on the U.K. not to give up oninternational regulatory cooperation after it leaves the EU.

“Whatever the future relationship between the U.K. and Europe, astrong commitment to international regulatory cooperation andinternationally agreed standards should underpin it,” he said. “Wevery much hope to continue working with all our partnersinternationally, but this is not only in our hands.”

Bloomberg News

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