Brexit latest: City hits back against EU’s “improved equivalence” offer for financial services
The City has hit back at suggestions that the EU is considering offering the UK "improved equivalence" as the basis of the future financial services relationship after Brexit.
Until now the EU has insisted that financial services would not be included in any free trade deal, with both Donald Tusk and Michel Barnier making it clear that a deal would be largely focused on goods.
However a document seen by Bloomberg suggests financial services may be back on the table – although it is unclear if the UK would be willing to consider any form of equivalence, having already ruled it out on the basis that it would make us a rule-taker.
The document states that: "Regarding financial services, the aim should be reviewed and improved equivalence mechanisms, allowing appropriate access to financial services markets, while preserving financial stability, the integrity of the single market and the autonomy of decision making in the European Union.
"Equivalence mechanisms and decisions remain defined and implemented on a unilateral basis by the European Union."
The document is expected to be one discussed by EU ministers on Tuesday, and is thought to be the first time financial services are directly referenced.
Miles Celic, chief executive of TheCityUK, said: "The EU has come a long way from its stance before Christmas when we were told a deal encompassing financial services was impossible. Now it is actively seeking ways to include financial services in the deal."
But he dismissed the suggestion that equivalence was the best path, pressing the case for mutual regulatory recognition as "the best option".
"This is ultimately in best interests of customers and clients in the UK and across Europe," he said. "Equivalence in its current form was never designed to carry the weight of a UK/EU trade relationship. We are now getting down to the brass tacks of the negotiation and it's time for the economics of the deal to take the front seat."
A City of London Corporation spokesperson agreed. "Since the UK voted to leave the EU the financial services sector has been clear: as it stands, equivalence simply won't cut the mustard
"Notice periods as short as 30 days under the current equivalency framework does not give firms in the UK or the EU the certainty or clarity they need in order to continue doing business.
"Choosing equivalency based trade above a comprehensive free trade agreement (FTA) would see an overall reduction in the volume of financial business across the continent, fragmentation of markets and activity moving to other global financial hubs, such as New York or Singapore."
The spokesperson pointed to proposals put forward by the International Regulatory Strategy Group (IRSG), in which financial services are included as part of an FTA but managed by a joint dispute resolution body and mechanisms for mutual market access.
Former minister and chair of the IRSG Mark Hoban told City A.M. it was "sign of momentum", adding: "We now have a very clear signal that the EU recognises the importance of financial services for the whole of Europe, and that it needs to be part of the future relationship".
He noted that while the Commission was still "pushing for the status quo" that EU27 ministers were "beginning to exert themselves and are pushing the dial".
"We saw this with the shift in allowing the UK to negotiate trade deals during transition – ministers realise that trade in both goods and services is at risk and this has to be a more creative deal than some off-the-shelf model," he said. There was recognition at a member state level that the equivalence model would not support what is required, however engagement with the model proposed by the IRSG had been "thorough".
"[Member states] want financial services in the deal, they are aware of the contribution it makes to their economy, they are concerned about the risk of fragmentation. They clearly feel it is as helpful to them as it is to us for there to be high level access to financial services from each others markets."
The IRSG proposal has been toured around cities across the EU, with 50 visits from financial services associations to member states just in the first quarter of this year, as well as being shown to ministers and officials in Westminster.
The government recently tacitly backed it, with both chancellor Philip Hammond and Prime Minister Theresa May citing regulatory alignment as the basis for a future trading relationship.