EU rejects May’s white paper plan for post Brexit financial services

According to the Financial Times, the EU’s chief negotiator Michel Barnier, last Friday told EU ministers that the financial services elements of May’s Brexit plans could not be accepted as they threatened to rob the bloc’s “decision-making autonomy” when it comes to finance.

The UK government’s white paper published following a weekend-long meeting of the Cabinet at Chequers, proposed a new relationship between the highly interconnected financial services sectors of the UK and the EU that would involve a system of so-called “equivalence.”

The UK government plan said it will seek to improve on existing requirements for equivalence of rules between the EU and outside countries.

Equivalence is a framework whereby the EU acknowledges that the legal, regulatory and supervisory regime of a non-EU country is as good as its own, and therefore allows that state access to the financial services sector within the bloc. Countries like Singapore and the USA already use a similar system to trade financial services with the EU.

However, Mr Barnier, told European affairs ministers on Friday that the British prime minister’s vision for the City’s relationship with the EU would violate the principle that access rights to the bloc’s financial services market are a gift from Brussels that can be freely withdrawn.

Under current EU rules, the European Commission grants equivalence rights after determining whether other countries’ regulatory regimes, in areas such as capital standards for banks and collateral rules for traders, are as rigorous as the EU’s own. Mr Hammond had previously backed a broader approach of “mutual recognition”, where the EU and UK would grant each other substantial market access rights in exchange for commitments to seek the same regulatory outcomes over time.

Speaking to reporters after Friday’s meeting, Mr Barnier was careful not to reject the UK’s white paper outright, saying that Brussels would “constructively” engage with the proposals. But he said that the document had raised “many questions” the UK had not yet answered.

He questioned the UK’s plans to remain in the EU’s single market for goods while leaving it for services.

“In products that you use every day, like your telephone, between 20 to 40 per cent of the value of the product is linked to services,”

Mr Barnier said. “How do we avoid unfair competition on services?” Another concern for Brussels centres on the UK’s proposals to have access to the single market for goods without having to apply all of the bloc’s product standards.

“The UK says ready to align on goods, but only for standards controlled at the border,” he said. “The UK will not align to agri-food rules, for example, on pesticides or GMOs because compliance is not policed at the frontier. So how can we protect the European consumer?”