A senior Conservative MEP has said that the United Kingdom should be ready to walk from a Brexit trade deal with Brussels in order to protect the City instead of settling for becoming a “rule taker” of the European Union.
Increasing concerns have been observed in the City and Westminster that the preferred outcome for financial services of the United Kingdom – a trade agreement that will allow substantial market access based on a “mutual recognition” of standards on both sides – will not be achieved.
The chief Brexit negotiator of the European Union, Michel Barnier, has ruled it out as “cherry picking” repeatedly, leaving government officials and City bosses with no choice but to consider alternatives privately.
An option that is outlined in the draft Brexit negotiating guidelines of the European Union last March would be giving access under the so-called “equivalence” regime of Brussels. However, this has raised concerns that the financial services sector of the United Kingdom – which accounts for 11 percent of economic output of the UK and contributed £72bn in tax during the previous year – would then be a “rule taker” of Brussels, with the possibility of the access being dismissed at a 30 days notice.
The vice-chairman of the economic committee of the European Parliament and a Conservative MEP, Kay Swinburne, said that she believed that this was not acceptable.
Swinburne stated: “The EU system of equivalence is fundamentally flawed. Any reliance on it would result in no regulatory stability. Either we get a financial services chapter in a free-trade agreement along the lines of mutual recognition or we walk away. Any prevarication won’t work for the UK.”
She emphasised that the plan on mutual recognition was “still on the table” in Brussels, despite Barnier’s public rejection of the plan.
The comments of Swinburne come following the speculation last week that a disagreement had opened up between the Bank of England and the Treasury over the right approach of the United Kingdom. The Financial Times reported that Bank officials are worried that the Treasury is ready to risk the regulatory autonomy of the UK by agreeing with a form of equivalence deal.
Previously, British Prime Minister Theresa May and Chancellor Philip Hammond, have said that equivalence would be completely inadequate for the City. However, equivalence is being reformed in Brussels currently, possibly offering them wriggle room. Hammond has ruled out letting the City become an “automatic rule taker.”
A senior lawyer at Hogan Lovells, Rachel Kent, originally drew up the proposal on mutual recognition that was adopted by the Government and some lobby groups of the City. She said that she believed that it was still in play.
Kent stated: “Nothing is lost, everything is still in play.”
She added: “I hope common sense prevails about protecting the City’s financial centre, which is a European asset.”
She said that it was an open question on whether going at it alone would be better for the City once the mutual recognition was rejected.