UK banks must be realistic about EU access after Brexit
Luxembourg says ambitious alternative is not practical
LONDON: Making the current system of European Union (EU) market access for non-members more workable is Britain’s best bet after Brexit as the more ambitious alternative sought by banks is unrealistic, Luxembourg’s finance minister told Reuters.
Britain’s financial sector, with backing from the government, wants two-way market access based on Britain and the EU accepting each other’s banking rules to avoid damaging the UK economy’s most important sector.
But such a bespoke “mutual recognition” trade agreement has never been agreed before and has found little support in Brussels so far.
Luxembourg Finance Minister Pierre Gramegna said the way forward was to revamp the EU’s current “equivalence” system to cope with a global financial centre on its doorstep.
Equivalence refers to Brussels granting market access to foreign banks, clearing houses, fund managers and insurers if their home rules are in line with the bloc’s. It is used by financial firms in the United States, Singapore and elsewhere.
Britain has rejected it, saying it is one-sided, patchy and access can be withdrawn at a month’s notice.
Gramegna said Luxembourg and France wanted to explore how the equivalence regime could be “enhanced”.
“If equivalence plays a much bigger role than it plays today then we need enhanced equivalence, that means putting on the table how does this equivalence work,” he told Reuters during a visit to London.
“It’s about making the procedure such that both sides can live with it, and that there is enough dialogue and transparency in the system,” Gramegna said.
“You can take away equivalence at short notice, and that is a problem as it does not give you security.” It could also be made to cover a broader range of financial services, he suggested.
Britain and the EU have agreed on a “standstill” transition period from Brexit, due to take place in March 2019, to the end of 2020.
“We must avoid that after the transition period that we have not solved this issue of equivalence in a smooth manner,” Gramegna said.
His comments echo those of top EU officials and signal a common front between a market-friendly country and France, seen by Britain as most keen to create an alternative to London’s financial hub on the continent.
Gramegna dismissed mutual recognition as a viable form of market access.
A Rolling Stones fan, he quoted one of the band’s most famous songs – “You can’t always get what you want ... You get what you need”. “I think that mutual recognition equals full and automatic access to the market. It would just be renaming access to the single market. It’s not only because the EU27 and the European Commission don’t want it, it’s not built on the same foundations as the EU,” he said.
“We are very keen on finding smart solutions but we must be realistic about what is achievable.” Luxembourg, like Frankfurt, Paris and Dublin, has attracted financial firms from London that need an EU base after Brexit.
“In the short term it has proved good for Luxembourg. Quite a few asset managers, quite a few insurance companies and banks are setting up, or stepping up their presence there,” Gramegna said.
The EU, however, is losing a strong proponent of open markets, he added.
The number of jobs moving or created in Luxembourg due to new or expanded hubs would be in “the hundreds and evolve into the thousands, but it’s not going to be a huge number”, Gramegna said. — Reuters