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The EU has warned Britain to lower its expectations of market access for the City of London after Brexit, delivering a blow to the UK’s hopes of a trade deal that maintains current flows of capital, staff and services.
Michel Barnier, the EU’s chief negotiator, suggested that after Brexit the country would have no preferential access for financial services other than patchy “equivalence” arrangements, such as those with the US or Singapore.
“On financial services, UK voices suggest that Brexit does not mean Brexit,” he said. ”Brexit means Brexit, everywhere.” This was a veiled reference to a speech last week by David Davis, the UK’s Brexit secretary, that set out the goal of durable” co-operation with the EU to protect the City.
Mr Barnier’s speech was one of the most detailed statements on how to date the union sees future developments in trade in financial services with Britain.
“They say there would be no changes in market access for UK-established firms. They say joint UK-EU rules would be decided in a new ‘symmetrical process’ between the EU and the UK, and outside of the jurisdiction of the European Court of Justice,” he said in further allusions to Mr Davis’s speech. “This would contradict the [EU negotiating guidelines].”
The comments by Mr Barnier, a former EU commissioner responsible for financial services, come as the City and the UK government coalesce around a model of “mutual equivalence” for financial services after Brexit. This model, which would take effect after a transition period of about two years, would allow for divergence in rulemaking, but within a structure that would preserve regulatory standards so that the flow of trade can continue.
But Mr Barnier argued such a goal would be unrealistic, since it would allow Britain to replicate the benefits of the single market while allowing the country to set different rules outside the jurisdiction of European courts.
“The legal consequence of Brexit is that UK financial service providers lose their EU passport,” he said, referring to the ability of financial groups to sell products throughout the bloc from a base within the single market.
Instead, he suggested the UK would have to rely on the current equivalence rules, in which the bloc deems that third country rules for specific activities are equivalent to EU regulations — a designation the European Commission can withdraw.
Mr Barnier added this would be in areas “where EU legislation foresees equivalence”, suggesting there would be no special arrangements to broaden such decisions to cover a broader range of financial services.
Mr Davis’s speech last week argued that the EU benefited from the concentration of financial services in London and would pay a cost for fragmentation.
But, echoing concerns among officials in France and Germany, Mr Barnier argued there would be a risk to Europe’s financial stability if the continent’s main financial centre was outside the EU’s regulatory orbit.
While co-operation would be possible at international level, Mr Barnier said this could never amount to the type of access enjoyed by Britain under the single market.
“Let’s not have a short memory!” he said, referring to the financial crisis. “We will not compromise on financial stability — we will never compromise on financial stability — in the EU and in the eurozone.”
His assessment came in a speech to the Centre for European Reform that highlighted the hurdles remaining if Britain is to achieve “sufficient progress” in divorce negotiations by a crucial December summit.
Mr Barnier stressed it was for Britain to “come forward with proposals” that would ensure there was no hard border on the island of Ireland, including through commitments to avoid regulatory divergence between Northern Ireland and the Republic if necessary.
Michael Roth, Germany’s minister for state, said the EU27 was still waiting for Britain to “get their skates on”.
“We are interested in starting the second phase of negotiations. But right now I see no chance that we can really send a signal at the European Council in December that these negotiations can start”, Mr Roth said in Brussels on Monday.