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LONDON (Reuters Breakingviews) - It’s taken more than a year, but British policymakers are finally publicly articulating a pragmatic approach to Brexit. Andrew Bailey, head of the UK’s Financial Conduct Authority, on Thursday set out a blueprint for continued free trade in financial services after Britain leaves the European Union. Even if UK politicians belatedly buy into the idea, their European equivalents have reasons to resist.
When Britain withdraws from the EU single market, UK-based financial services firms will no longer be able to serve clients on the continent. Bailey thinks the doors can stay open as long as UK regulations are deemed “equivalent” to those in the EU. He sees four key criteria to achieve this: comparable rules; coordination between regulators; regular exchanges of information; and a mechanism to resolve disputes.
This approach might allow Britain’s financial services industry to retain some access to the single market. But it would impose constraints. For one, British regulators would have to enforce any new rules their EU counterparts dream up without having any say over their design. Second, they would have to accept the legal authority of a foreign entity. The European Court of Justice currently plays this role, but Prime Minister Theresa May has made ending its jurisdiction in the United Kingdom one of her key negotiating conditions.
British politicians who are waking up to Brexit’s harsh realities may be willing to contemplate such compromises. Their European counterparts, however, are showing no such flexibility. “You cannot be half-in and half-out of the single market,” Michel Barnier, the EU’s chief negotiator, said on Thursday. Many European countries are keen to attract financial firms. And EU citizens working in Britain’s financial services industry, unsettled by half-baked assurances about their status, are increasingly willing to contemplate relocation.
As long as London remains Europe’s main financial centre, foreign regulators will worry about what happens there. As Bailey argues, financial stability in the UK is a “global public good”. A sudden withdrawal from the EU would impose risk and pain on all sides, which is why it is essential that Britain quickly agrees to a long transition period after it leaves. The case for a pragmatic Brexit, however, may have come a year too late.
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