Now banks call for ‘hard Brexit’ to access EU single market

CITY lobbyists are set to argue for a ‘hard Brexit’ deal in which banks and insurers trade on the basis of having equivalent regulations to Brussels – ditching the ‘passporting’ regime that allows financial firms to offer services to EU clients in all areas.

The move would mean that financial companies could retain access to the single market despite Britain no longer being a member.

City lawyers believe the so-called ‘equivalence’ rules can be beefed up and extended as part of the UK’s exit negotiations.

Those rules allow banks around the world to offer services to EU clients if they can show their regulations are as strong as those in the EU.

Barney Reynolds, a partner at law firm Shearman & Sterling who is close to the City’s lobbying process, said: ‘There are significant sovereignty issues with passporting which make it a more difficult option to negotiate satisfactorily.

‘Three weeks ago some banks were looking at going down an equivalence route with identical rules to the EU.

‘Various hedge funds and other market participants wanted different rules and a more negotiated equivalence position, allowing the UK to take a different position on certain topics while still obtaining equivalence where it matters.’

Many banks are now said to be swinging behind the ‘negotiated equivalence’ plan, which could allow the UK to loosen the bonus cap and capital rules in areas which do not affect the EU financial system.

The cap limits bonuses to a maximum of twice a banker’s salary. The UK opposed its introduction and banks have tried

to get round it by paying staff extra through fixed annual ‘allowances’ rather than through bonuses.

Retaining the EU passport for banks would be fraught with difficulties as EU officials insist it would mean retaining freedom of movement, adopting EU laws and making payments to Brussels.

US banks offer services to EU clients from New York on the basis of equivalence rules.

The rules in place already would allow financial firms to carry out many wholesale activities including derivatives trading, but the same rights for areas such as retail financial services and even for lending by banks to EU corporate clients would have to be negotiated.

The British Bankers’ Association said: ‘The banking sector unequivocally wants to maintain the current level of full access to the EU market.

‘Retaining full market access to the single market is different from retaining full membership of the single market.’