Britain is drawing up plans to axe swathes of pre-Brexit financial rules after giving up hope that Brussels will grant the City widespread access to the Single Market, The Sunday Telegraph can reveal.
The Treasury has begun scrutinising the whole suite of finance regulations which were kept in British law after our departure from the European Union, with a view to weeding out cumbersome red tape and enhancing London’s role as a global trading hub.
It comes amid growing acceptance in the Government that Brussels is not prepared to offer market access to enough UK financial industries to make sticking closely to its regulations worthwhile.
The European Commission has demanded details of Britain’s plans to diverge from EU rules before it considers granting access through a system called equivalence, which can be unilaterally withdrawn with as little as 30 days notice in some cases.
However, senior figures in Brussels are suspected of seeking to stall the equivalence process in a bid to steal business from London or extract concessions in other areas.
One Whitehall source said that a bare-bones deal on finance has now been priced in, and ministers believe that the City is fully prepared for it.
The source said: “The situation was always going to be that we weren’t locked into their evolving rulebook. It was always going to be thin.”
While a number of significant reforms are likely, the Treasury remains of the view that there should not be divergence for its own sake.
Rishi Sunak, the Chancellor, offered equivalence to EU firms in a slew of areas last November but there was no reciprocal move from Brussels.
He is now eyeing a number of changes to maintain the City’s attractiveness post-Brexit and will give a major speech later this summer, most likely in July. This is likely to include a reduction of the bank corporation tax surcharge, which is set at 8pc and applies to all banks with annual profits of over £25m.
Brussels has warned it is in no hurry to begin considering whether or not to grant equivalence, with a decision not expected before the middle of the year at the earliest. It is widely suspected to be going slow on access to encourage more businesses to shift offices to the Continent.
France warned this week it would further delay the equivalence process unless the UK forced Jersey to remove new conditions on fishing licences which Paris and Brussels said violated the Brexit trade deal.
Some City insiders are now convinced that the time is right to concentrate on new global markets rather than the EU.
Billionaire City tycoon Michael Spencer, a major Conservative donor who voted Remain in 2016, accused the EU of protectionism on financial services. He said Brussels has excluded the UK from equivalence even though its rules are currently virtually identical and the status has been granted to many other countries.
Lord Spencer said: “This retrograde move necessitates that the UK take major steps to make London even more attractive for all financial services in the UK. In the long run excluding the UK will prove to be a major error by the EU.
“All protectionism ends in failure.”
City lawyer Barney Reynolds, who sits on the advisory board of industry lobby group TheCityUK, said that regulators are looking at the rules again and added: “We’ve got to start thinking for ourselves”.
An EU cap on bankers’ bonuses could be lifted. However, Whitehall sources said that would be “quite provocative” and is unlikely in the short term. Bonuses are currently limited to 100pc of workers’ salaries, or double that with shareholder approval.
Fund managers are keen for the Mifid rules for their industry to be overhauled but some insiders in the Treasury — which played an influential role in drafting post-crisis EU legislation alongside the Financial Conduct Authority (FCA) — are understood to be less keen on radical divergence.
Last month the FCA proposed changes to share trading reporting requirements to reduce burdens on investment firms and make UK financial services more competitive.
Charlotte Stalin, head of financial services at law firm Simmons & Simmons, said she believes that the UK is looking at relatively subtle divergence in order to preserve the option of equivalence.
Mairead McGuinness, the EU financial services commissioner, has warned that deregulation could pose a risk to financial stability.
In January, she said: “We do not like light touch.”
The UK has asked for 28 areas to be considered for equivalence and has agreed the terms of a forum for both sides’ financial regulators.
EU sources said the deal, seen as a preliminary step to a possible future equivalence decision, will be formally proposed to member states in the next fortnight.
A Treasury spokesman said: “We’re moving quickly to boost the competitiveness of the City and announced a series of new measures at Budget — like new visa routes and plans to reform our listing and capital markets rules.”