UK wants cake but may opt for a fudge

Boris Johnson believes in “cakeism”: having it and eating it. His plan to secure post-Brexit access to the European market for the City of London has a predictably lofty tone.

Britain wants the right to set its own rules. It also wants a “permanent equivalence” regime — a recognition that rules are closely enough aligned to grant market access — that will last for “decades to come”.

Don’t kid yourselves, said the EU’s top negotiator, Michel Barnier. That option is not on offer.

Indeed, a UK briefing paper appeared to acknowledge as much. The alternatives mooted were far less attractive. The best — a “selective equivalence” regime — underlined the piecemeal, temporary nature of the proposed arrangements. No wonder the financial services industry is jittery.

A fudge might seem the suitably British answer. The UK would claim the right to depart from EU rules, trumpeting its newly won sovereignty. But it would only lose access to the EU markets if it actually exercised that right. Pragmatism would make it avoid that outcome.

Yet that will not wash. The problem is not just the unpopularity of existing rules, for all investment banks gripe at Mifid II and insurers at the EU’s Solvency II capital regime. The problem is that the UK may baulk at bending to Brussels’s rules as they change.

Still, a compromise of sorts can be hammered out. European firms will not want to lose access to the City’s deep markets. Expect a “selective equivalence” regime for a few areas — clearing, stock exchanges and broker-dealers, say — where avoiding disruption suits everyone.

For other sectors, the outcome may feel rather similar to a no-deal Brexit: bad news for a sector that accounts for more than a tenth of all tax receipts and a fifth of services exports. JPMorgan Chase, Bank of America, HSBC and BlackRock are among those shifting thousands of jobs to Paris. /London, February 12

©