Uproar as Hammond lets EU set rules for City
Business chiefs tell Chancellor to demand a better deal
‘Regrettable and frustrating’
BUSINESS leaders have attacked the Chancellor’s U-turn on a pledge to give the City control over its own rules after Brexit.
They say financial institutions will end up taking rules from Brussels – rather than setting down gold-standard regulations for the rest of the world to follow.
Philip Hammond promised in March that the UK would not be a rule-taker after it leaves the EU. He said in a speech: ‘The UK cannot simply become automatically become a rule-taker.’
He backed a deal that would see the UK and EU agreeing on ‘mutual recognition’ – a close trading partnership where both sides recognise the high standard of rules they independently put in place.
The City is widely regarded as having one of the world’s most rigorous rulebooks for finance houses.
But this week it was revealed that the UK would not be pursuing the mutual recognition model. Instead, the UK wants ‘equivalence’, under which it is up to the EU to decide whether the rules in the UK meet its standards.
It would essentially mean that UK firms have to follow guidelines set by Brussels if they want to operate in the EU. In his speech Mr Hammond had said equivalence ‘would be wholly inadequate’.
Huw Evans, director general of the Association of British Insurers, said: ‘Whatever the final outcome, the insurance industry is too important to be a rule-taker. Having to comply with financial regulations we have no say over would be the worst possible scenario for our world-leading insurance sector, so we will look to the Government to negotiate a better outcome than this.’
Brexiteers said that as a global financial centre, it would be madness for London to depend on regulations set elsewhere.
The Chancellor was yesterday forced to defend his U-turn in an article for the Financial Times. Mr Hammond said: ‘This is not about prioritising goods over services. It is about unlocking and accelerating talks with the EU – including on financial services.’
But the proposals – set out in a Brexit White Paper – were met with disappointment in the Square Mile.
Catherine McGuinness of the City of London Corporation said: ‘This is a real blow for the financial and related professional services sector.
‘With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy. It’s that simple.
‘The sector has been clear since the referendum. Equivalence in its current form is not fit for purpose.’
Miles Celic, chief executive of TheCityUK lobby group, said: ‘The overriding issue for financial and related professional services firms is the ability to continue serving customers and clients.
‘Mutual recognition would have been the best way to achieve this. It’s therefore regrettable and frustrating that this approach has been dropped before even making it to the negotiating table.
‘In hundreds of discussions across the EU, the industry has never come across an unanswerable technical or commercial barrier to this approach. The EU’s objections have always been political.’
In the Financial Times article, Mr Hammond tried to address these concerns by claiming that the Government wanted a deal which goes beyond existing equivalence rules.
He also argued that the Government’s proposals were more likely to be accepted by the EU than the City’s favoured option.
The Chancellor said: ‘We set out a realistic framework that provides sufficient stability and certainty for the market to operate. This is less than mutual recognition, but it is more than the EU’s equivalence regime. It is a model that preserves the stability, transparency and certainty of the former, while respecting the sovereignty of the latter.’
Equivalence deals can be cancelled at just 30 days’ notice under existing EU rules – giving Brussels the power to force other nations to accept regulations they do not like – or risk being frozen out.
It is feared that finance firms would face red tape with no prospect of challenging it.
THERESA May yesterday launched a charm offensive to woo rebel Eurosceptics ahead of key votes next week.
Brexiteer MPs arrived for tea with the PM at Chequers yesterday afternoon shortly after US President Donald Trump left.
Mrs May is trying to convince them to back her plan for Britain’s future relationship with the EU and vote with the Government on the customs Bill.