Among the reactions to the UK Government’s recently published White Paper on Brexit, the strongest has come from firms in the financial district (known as the City) of London. These companies have been highly critical of the decision to drop the favoured post-Brexit trade model for financial services. A senior City of London policymaker said the move was “a real blow” to financial services, while a top lobby group called it “regrettable and frustrating”.
Setting out the UK’s official position for talks on the future relationship with the European Union, the white paper says, the government will no longer pursue so-called “mutual recognition” between London and the Brussels. The mutual recognition model was promoted by the financial district’s representatives and would have seen the UK and the 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 by the government 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 currently 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 contesting.
Policy chairman of the City of London 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 ‘enhancement’ to this regime would have to be substantial,” she added.
Chief executive of TheCityUK, Miles Celic, 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.” The government’s position wasn’t helped by the leak of an alternative white paper drafted earlier. It was published on political blog ConservativeHome, this version — written under David Davis (former negotiator for the UK) — shows that mutual recognition had featured prominently until the government seemingly decided to back down.
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.
Many people in the financial district are angry that the prime minister’s office has capitulated before formal talks on the future relationship have even started. What kind of message does the climbdown send? However, the City’s ire is not limited to the UK government. Michel Barnier and others at the European Commission are arguably the source of even greater frustration. If they had shown any sign of being minded to compromise on their outright rejection of sensible, mutually beneficial approaches to financial services, the UK could be in a position to strike a deal that works for everyone, it is felt.
Instead the UK has endured months of being told something can’t be done simply because it hasn’t been done before. Time is running out to find common ground with Brussels’ obdurate negotiators. Business groups have been frustrated by the UK’s dithering over Brexit. Nonetheless it is clear that they, along with bosses in the financial district, are tired of Barnier’s obstinate approach to the talks. Any failure to move forward at this stage could be seen as less of an indictment of the UK’s position, and more of a reflection of Brussels’ inclination to seek punishment for the referendum vote.
By Andy Jalil – our foreign correspondent based in the UK. He can be reached at email@example.com