SOFIA/LONDON (Reuters) - The EU’s chief negotiator on Brexit said on Thursday the bloc’s existing system of market access for foreign financial firms can work well for Britain after it leaves the European Union.
This would reduce the chances that Britain’s financial sector will get the bespoke deal that London is hoping for.
“Why would the equivalence system, which works well for the U.S. industry, not work for the City?,” Michel Barnier told a financial conference in Sofia, the Bulgarian capital.
The so-called equivalence system works on the basis of Brussels granting access to the EU for banks, insurers and asset managers from outside the bloc if the bloc deems their home rules to be similar enough.
But Britain has said equivalence is too one-sided and wants a bespoke trading deal based on mutual recognition of the UK and EU accepting each other’s financial rules.
Barnier said the EU’s financial stability could not be guaranteed if financial firms operated inside the EU’s market with foreign licences.
The bloc’s objectives of financial stability and investor protection could not be achieved “if financial institutions could operate in the EU, or serve clients in the EU, based on an authorisation by the supervisors of a third country, subject to the rules, supervision and enforcement mechanisms of this third country alone,” Barnier said.
“This is not something that any country in the world would accept.”
His remarks echoed comments from the EU commission’s vice president Valdis Dombrovskis who in a conference in London earlier this week said equivalence was not a perfect system but it could work well for Britain after Brexit.
Equivalence decisions could be made by the EU during the proposed 21-month transition period after Britain leaves the EU in March 2019, Barnier said, comments that will be welcomed by clearing houses and other market infrastructure companies.
“The equivalence system will operate in a more effective manner if the UK decides not to diverge from our financial regulation,” he added.
Britain was “pleading” for something it was already getting in the single market.
Separately, Andrew Bailey, chief executive of the Britain’s Financial Conduct Authority, said even EU officials see problems with equivalence and negotiations between Britain and the EU on future trading terms were underway.
Britain is keen not to become a “rule taker” or having to copy and paste EU regulation into its own law to stay “equivalent”.
UK Finance, a banking industry body that helped to draw up the mutual recognition blueprint, said equivalence would need to be enhanced to give customers on the continent a stable basis to continue accessing vital cross-border services provided by UK-based firms.
Barnier said that since the transitional period has not be formally agreed with Britain, financial operators should be ready “for the worst”, in case no deal were reached and ratified.
“We have made good progress in the last six months, but we are not there yet. There is difficult work ahead before the June European Council,” Barnier said, referring to the quarterly meeting of EU leaders next month.
He reiterated that Brexit was a “lose-lose” situation for both Britain and the EU, but stressed that Britain was set to lose more.
“Brexit will come at a cost. And this cost will be substantially higher for the UK than for the EU,” he said.
Additional reporting by Huw Jones in London,; Editing by Robin Emmott and Richard Balmforth