Brussels rejects UK’s financial services Brexit plan

Barnier dismisses white paper’s ‘enhanced equivalence’ and says EU needs autonomy

Brussels has rejected the UK’s proposals on how to govern the City of London’s access to the European market after Brexit, saying Theresa May’s latest financial services plan would rob the EU of its “decision making autonomy”.

Michel Barnier, the EU’s chief Brexit negotiator, told European affairs ministers on Friday that the British prime minister’s vision for the City’s relationship with the EU would violate the principle that access rights to the bloc’s financial services market are a gift from Brussels that can be freely withdrawn.

His remarks were a rebuff to the UK government, which published its white paper this month on Britain’s future relations with the EU, and highlight the many conflicts between the two sides despite a more conciliatory tone over the Northern Ireland border issue at the same meeting.

The 98-page document signalled a shift in its position on financial services with plans for an enhanced “equivalence” model – building on an existing EU system that countries including the US and Singapore use to simplify their access to the bloc.

The UK has acknowledged that it would lose its single market “passport”, and Philip Hammond, chancellor, scrapped a more ambitious “mutual recognition” plan, but said the City would seek a better deal than the EU’s existing equivalence model.

However, according to two people who attended Friday’s meeting, Mr Barnier told ministers that the plan would ride roughshod over the EU’s stance that equivalence decisions must be made unilaterally by Brussels. He said it would amount to a “system of generalised equivalence that would in reality be jointly run by the EU and UK”.

The UK white paper called for equivalence to be “expanded”, saying it was “not sufficient to deal with a third country whose financial markets are as deeply interconnected with the EU’s as those of the UK are”. It also envisaged a unique system of joint governance and a “safeguard for acquired rights”, to prevent the UK’s access to the EU financial services market from being easily withdrawn.

Under EU rules, the European Commission grants equivalence rights after determining whether other countries’ regulatory regimes, in areas such as capital standards for banks and collateral rules for traders, are as rigorous as the EU’s own.

Mr Hammond had previously backed a broader approach of “mutual recognition”, where the EU and UK would grant each other substantial market access rights in exchange for commitments to seek the same regulatory outcomes over time.

Speaking to reporters after Friday’s meeting, Mr Barnier was careful not to reject the UK’s white paper outright, saying that Brussels would “constructively” engage with the proposals. But he said the document had raised “many questions” the UK had not yet answered. He questioned the UK’s plans to remain in the EU’s single market for goods while leaving it for services. “In products that you use every day, like your telephone, between 20 to 40 per cent of the value of the product is linked to services,” Mr Barnier said. “How do we avoid unfair competition on services?”

Another concern for Brussels centres on the UK’s proposals to have access to the single market for goods without having to apply all of the bloc’s product standards. “The UK says [it is] ready to align on goods, but only for standards controlled at the border,” he said. “The UK will not align to agri-food rules, for example, on pesticides or GMOs because compliance is not policed at the frontier. So how can we protect the European consumer?”