Britain wants a stable relationship with the European Union for “decades to come” in financial services, finance minister Sajid Javid said on Tuesday, only to receive an instant rebuttal from Brussels.
Britain left the EU last month and its large financial services sector will lose privileged access to EU customers from January 2021. Financial firms would be able to service those clients only in sub-sectors where rules are deemed “equivalent”.
Javid urged the EU to consider Britain’s financial sector “equivalent”, a reference to the bloc’s system of financial market access, based on Brussels acknowledging that UK regulation is as robust as the EU’s.
“This is important not only in the short term, but to establish the norms and ways of working with the EU that will endure for decades to come,” Javid said in an article in City AM newspaper.
Replying to a lawmaker’s question later in parliament, Javid said the EU should continue to recognise the UK as meeting the EU’s equivalent regulatory standards because “on day one (Jan. 1, 2021) we will have exactly the same rules”.
However, EU chief Brexit negotiator Michel Barnier said London should be “under no illusion” on financial services as there would be “no general, global, permanent equivalence” with Britain.
“There will be no common management,” Barnier told the European Parliament in Strasbourg.
Equivalence only covers some financial activities, basic banking is excluded, and Brussels can in theory scrap access with just 30 days’ notice in some cases.
Britain and the EU have agreed to make such an assessment by the end of June, but Brussels says actual financial market access will be linked to broader trade issues such as fishing rights.
“UNSTABLE” EQUIVALENCE REGIME
Bank of England Governor Mark Carney has spoken against Britain becoming a taker of EU rules. He told lawmakers in the upper house of parliament on Tuesday that risks to Britain’s financial stability and competitiveness would grow over time by not being “at the table” for the development of EU rules.
“The equivalence regime in the EU is a relatively unstable equivalence regime,” Carney said.
An unverified photo of a government briefing paper on equivalence taken outside Javid’s Downing Street office by PoliticalPics on Monday spoke of “comprehensive, permanent equivalence decisions” as an opening position for Britain.
Equivalence is used by countries such as Singapore, the United States and Japan, but it has never been applied before to a huge financial centre on the EU’s doorstep. The bloc has been tightening conditions for equivalence ahead of Brexit.
Brussels has also made clear that if equivalence is granted for trading, clearing or other financial activities, its regulators would closely supervise UK rules to ensure it was staying aligned to those in the bloc.
Faced with uncertainty over equivalence, financial firms in Britain have opened hubs in the EU to avoid being cut off or having reduced access.
Javid said Britain would no longer be a “rule taker”, meaning it will not continue to cut and paste EU financial regulations into UK law as it did while a member of the bloc.
More broadly, the EU is prepared to offer Britain unrivalled access to its single market in a trade deal with zero tariffs and quotas, but has insisted that any such rights would have to come with obligations to ensure fair competition.
European Commission President Ursula von der Leyen said she was encouraged by British Prime Minister Boris Johnson’s ambition on social and environmental standards and that these could form the basis of ‘level playing field’ obligations between the EU and Britain.