The European Union late last week dealt a major blow to the UK’s financial services sector in the lead up to Brexit, after negotiators rejected the plans for the sector laid out by the British government in Prime Minister Theresa May’s controversial white paper. The UK, earlier in July, proposed a new relationship between the highly interconnected financial services sectors of the UK and the EU that would involve a system of so-called “equivalence.”
European Union (EU) lawmakers have rejected the UK’s negotiating position on the governance of UK financial services firms’ access to European markets over concerns the proposal would endanger the bloc’s “decision making autonomy”. Speaking to European affairs ministers on Friday 20th July, EU chief negotiator Michel Barnier dismissed Prime Minister Theresa May’s proposal, which was laid out earlier in July in a white paper, explaining, “It would violate the principle that access rights to the bloc’s financial services market are a gift from Brussels that can be freely withdrawn.”
May’s controversial white paper dismissed the asset management industry’s favoured mutual regulatory recognition model in favour of an enhanced version of the “equivalence” model, which enabled the likes of the US and Singapore to simplify their access the bloc. Barnier said, “the plan is incompatible with the EU’s stance that equivalence decisions must be made unilaterally by Brussels and would amount to a system of generalised equivalence that would in reality be jointly run by the EU and UK”.
May’s white paper had called for equivalence to be “expanded”, explaining it was “not sufficient to deal with a third country whose financial markets are as deeply interconnected with the EU’s as those of the UK are”. The model proposed a system of joint governance and a “safeguard for acquired rights”, thereby preventing the UK’s access to the EU financial services market from being easily cancelled. Following the meeting, Barnier said that the EU would not reject the UK’s proposals outright, adding that Brussels would engage “constructively” with them.
Experts at Sergo Capital thinks that this rejection is likely to be a major blow for the British government, which has already scrapped one set of proposals for the future financial services relationship after it was said to be too ambitious.
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