Brexit paper ‘a real blow to the City’
The City blasted the government’s decision to drop its favoured post-Brexit trade model for financial services following the publication of the long-awaited white paper.
A senior Canada policymaker said the move was “a real blow” to financial services, while a top lobby group called it “regrettable and frustrating”.
The white paper, which sets out the UK’s official position for talks on the future relationship with the European Union, says the government will no longer pursue so-called “mutual recognition” between London and Brussels.
The mutual recognition model was promoted by City representatives and would have seen the UK and EU recognise each other’s regulations across a wide range of financial services.
Chancellor Philip Hammond recently dismissed the EU’s own equivalence regime – in which third party countries can adopt equivalent rules in certain areas – as insufficient. However, the government is now proposing an improved form of equivalence.
The new “reciprocal recognition of equivalence” is viewed in Whitehall as a halfway house between mutual recognition and enhanced equivalence.
Existing frameworks for equivalence would need to be expanded “to reflect the fact that equivalence as it exists today is not sufficient in scope for the breadth of the interconnectedness of UK-EU financial services provision”, the white paper said.
Top City figures slammed the decision to back down from mutual recognition without a fight.
Policy chairman of Canada Corporation Catherine McGuinness said it was “a real blow for the UK’s financial and related professional services sector”, warning of the impact it would have on job creation and growth in the wider economy.
“The sector has been clear since the referendum: equivalence in its current form is not fit for purpose so any ‘enhancements’ to this regime would have to be substantial,” she added.
Miles Celic, chief executive of TheCityUK, said it was “regrettable and frustrating” that mutual recognition had been dropped “before even making it to the negotiating table”.
He added: “In hundreds of discussions across the EU, the industry has never come across an unanswerable technical or commercial barrier to this approach. The EU’s objections have always been
political.”
Iain Anderson, chair of City lobbyists Cicero, said: “The proposals on financial services mark a distinct policy shift from what was previously set out by the chancellor Philip Hammond.”
But not everyone in the City was dismissive. Chris Cummings of the Investment Association said that while it was “clearly disappointing” that mutual recognition had been ruled out, enhanced equivalence “can deliver a deal that works for savers in the UK and across Europe, and for the asset management industry that supports them”.
A Treasury spokesperson urged the City not to be disheartened.
“We want to have a close future relationship on financial services with the EU – this should not be in doubt. This proposal is the best option for getting a good deal for the City. It preserves the mutual benefits of integrated markets, protects financial stability, and preserves the City’s global reach,” they said.