Europe’s chief Brexit negotiator has warned UK politicians not to “kid” themselves about continued access to the EU market for UK financial services firms.
Addressing the European Parliament on Tuesday, Michel Barnier told MEPs the EU would not open financial services up for negotiations in trade talks.
Instead, the EU will offer ‘equivalence’, which means European regulators will dictate the standards that UK-based finance firms must uphold. Barnier signalled that regulators will also regularly check to make sure these standards are being met. Firms could be kicked out of the Single Market if they fall short.
“We’re not negotiating on these topics with the United Kingdom, rather we are checking that there is consistency and wherever possible we will grant equivalence,” Barnier said.
“They should not kid themselves about this, there will not be general open-ended ongoing equivalence in financial services. We will keep control of these tools and we will retain a free hand to keep our own decisions.”
UK-based financial services firms are set to lose passporting rights at the end of the transition period on 31 December 2020. Passporting allows EU-based finance firms to use their own local licenses to operate anywhere in the Single Market.
‘Equivalence’, on the other hand, would mean EU watchdogs grant specific firms or sectors the right to operate in the EU, so long as they meet centrally defined standards. It is a much more hands-on approach.
“That’s what we did with Canada, that’s what we do with the United States and Japan, and it works,” Barnier said. “So I don’t see why it shouldn’t work with the United Kingdom.”
However, George Buckley, chief UK and European economist, said earlier this month there are “a few big problems with the equivalence regime”.
“The EU can pull the plug on them within a month,” Buckley told Yahoo Finance UK. “Financial services might one month be in scope and next month be out of scope. You can’t run a business reasonably on the assumption that you might not be able to trade with Europe in a month’s time.
“They’ve always got their own definitions of what equivalence means and it might not stack up with us.”
Britain and the EU are set to begin trade talks next month. Barnier signalled in a speech earlier this month the UK must align closely to EU standards if it wants continued deep access to the Single Market. Irish leader Leo Varadkar said last month the UK may also have to make concessions on fishing access in exchange for financial services access.