Michel Barnier has warned Sajid Javid and Boris Johnson that “they should not kid themselves” that Brussels will give a special deal to the City of London after a photograph emerged of the UK’s opening negotiating position on the new post-Brexit arrangements.
A briefing paper, snapped by a long-lens camera as it was taken into Downing St on Monday, suggested the UK would seek in the coming negotiations a “permanent equivalence” regime for financial services that would last for “decades to come”.
Speaking in the European parliament in Strasbourg, the EU’s chief negotiator scotched the chancellor’s hopes for maintaining such stable access to the European market after the end of 2020, when the UK leaves the single market and customs union.
“I’d like to take this opportunity to make it clear to certain people in the United Kingdom authority that they should not kid themselves about this. There will not be general open-ended ongoing equivalence in financial services, nor other management or financial agreements with the United Kingdom,” Barnier said. “We will keep control of these tools, and we will retain the free-hand to take our own decisions.”
At the end of the transition period, the British financial services sector will no longer have the right to operate in the EU as it does today.
The City will instead rely on Brussels judging that the UK’s regulations and supervisory systems are sufficiently robust – a so-called equivalence decision that can be overturned with as little as 30 days’ notice.
The document photographed outside Downing Street said that Javid would instead be seeking “comprehensive, permanent equivalence decisions”, according to a report in the Financial Times.
Such an equivalence deal could mean foreign companies such as investment firms and clearing houses can serve European customers largely from their home base and avoid having to set up a subsidiary in the EU.
Barnier told MEPs that Brussels would not even engage in talks on the topic let alone be open to granting such a deal.
He said: “We are not negotiating on these topics, rather we are checking that there is consistency and wherever possible granting equivalence on particular sectors of the financial industry.
“That’s what we did with Canada, that’s what we did with the United States. It works. So I don’t see why it shouldn’t work with the United Kingdom.”
While all the focus on Brexit talks has been on goods, the financial services chapter in any trade deal is critical for the UK. It employs more than 1 million people and contributes £127bn to the economy, according to Javid in an article in City AM on Tuesday.
“We hope to agree a chapter on financial services in the UK-EU free trade agreement that establishes a baseline for the trading relationship,” the chancellor said.
“If the EU, like us, wants a durable relationship, we should also include measures to directly address the long-term needs of industry for a reliable equivalence process.”
He said this offered “the best solution to the question of agreeing our relationship with the EU this year” and was “important not only in the short term, but to establish the norms and ways of working with the EU that will endure for the decades to come”.
The photograph of the briefing paper sets out two possible “landing zones” in talks with the EU.
One would involve “selective equivalence” and a side deal committing to a “joint declaration on cooperation” which would kick in if the deal the government hopes to conclude by the end of the year does not include financial services.
The second “landing zone” would be a “time-limited” agreement on financial services. / theguardian