Monday, 26 March, 2018
By Nikos Chrysoloras and Ian Wishart
(Bloomberg) — The European Union is fine-tuning what
access it’s prepared to give the U.K.’s crucial financial
services industry after Brexit, and the proposal falls far short
of what Britain and its banks think is fair.
The EU will consider offering the U.K. “improved
equivalence” for its financial services, according to the latest
draft of the bloc’s negotiating position, obtained by Bloomberg.
That means the EU will only let U.K. banks access its market for
as long as it considers British rules to be equivalent to the
It’s an unstable arrangement as the EU can withdraw the
approval at short notice, and Chancellor of the Exchequer Philip
Hammond speaks for banks when he says such a setup would be
The use of the word "improved" in the draft is
intentionally vague, according to an EU official who declined to
be named. The EU is already working to tighten up its
equivalence regime — which is used now by U.S. banks — and is
doing so with Brexit in mind. Some EU members are keener than
others on giving the U.K. a good deal on finance, and the
wording of the draft text reflects that tension.
Britain and its banks have long given up hope of keeping
full access to the single market via so-called passporting
rights. But they are now pushing for a system of mutual
recognition as they want a set of rules that is more durable and
not subject to unilateral withdrawal. Hammond has said that a
post-Brexit trade agreement that doesn’t include services
wouldn’t be "fair and balanced."
While the U.K. argues that keeping the City as a financial
hub is in the interests of the EU and London, the EU says its
priority is financial stability and respecting the integrity of
the single market. Throughout talks, the EU has rejected
attempts by the U.K. to cherry pick the best bits of EU
But the U.K.’s finance lobby saw the glass as half-full.
"The EU has come a long way from its stance before
Christmas when we were told a deal encompassing financial
services was impossible. Now it is actively seeking ways to
include financial services in the deal," Miles Celic, chief
executive of TheCityUK, said.
The new wording is in an annex to the draft guidelines and
will be discussed by EU ministers meeting on Tuesday. Earlier
drafts didn’t mention financial services explicitly although
they made clear that the trade agreement the EU intends to
strike with the U.K. wouldn’t make special provisions for
“Regarding financial services, the aim should be reviewed
and improved equivalence mechanisms, allowing appropriate access
to financial services markets, while preserving financial
stability, the integrity of the single market and the autonomy
of decision making in the European Union,” the draft reads.
“Equivalence mechanisms and decisions remain defined and
implemented on a unilateral basis by the European Union.”
The commission has already started to review financial
services legislation, to ensure that equivalence rules are
appropriate for the situation after the withdrawal of the U.K.,
according to the document.
The commission has recently started to address some
shortcomings of its equivalence regime. In December, it proposed
to tighten the procedure for allowing firms access under MiFIR,
a regulation that includes a third-country regime for a range of
investment services. The aim was to set out the requirements for
equivalence “in greater detail,” according to the commission.
In an apparent nod to the U.K., the commission made clear
that an equivalence recognition wouldn’t be easy to obtain. The
assessment would have to be “very detailed and granular and also
assess supervisory convergence with the EU” when it comes to
third countries whose firms may be of “systemic importance” to
the bloc, the commission said.
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