UK: Financial Services Companies Must Accept post-Brexit EU Regulations, according to French Politician.

As published on independent.co.uk, Wednesday February 26, 2020.


Michel Barnier has told the City of London that its financial services companies must accept being “rule-takers” observing EU regulations if they want continued access to continental markets after Brexit.

In a hardline message just days before the opening of UK/EU trade negotiations on Monday, Mr Barnier said that the granting of “equivalence” status allowing firms to operate with the 27-nation bloc will remain a “unilateral decision” for the EU taken in the interests of its own economies.

And he said that the EU was not willing to take on risks from banks operating under UK rules, when the profits for their activities remain in Britain.

His comments set the scene for a frosty start to four days of talks next week in Brussels, which kick off a breakneck sequence of negotiations intended to deliver a free trade deal by the end of 2020.

Cabinet minister Michael Gove is expected to set out the UK’s negotiating position in a statement to parliament on Thursday which will expose deep divisions with Brussels over the issues of regulation, fisheries and border controls.

It is thought Boris Johnson now believes his mandate for negotiations now derives from the Conservative manifesto, rather than the political declaration he agreed with the EU in the autumn, which committed him to a "level playing field" on regulations.

In a speech to the ESCP business school in Brussels, Mr Barnier voiced concern at ministers in Mr Johnson’s government “distancing” themselves from last year’s withdrawal agreement and political declaration, which he said had to be “properly respected and implemented to the letter”, particularly in relation to the checks required for goods passing between Northern Ireland and mainland Britain.

And he confirmed that even if a free trade agreement is reached by the deadline of 31 December, all goods arriving in the single market from the UK will be subject to checks and controls at the border from the start of 2021.

Mr Barnier said that the EU was ready to offer the UK “super-preferential access” to the single market, but only if London signed up to “level playing field” regulations which would prevent it watering down environmental protections and workplace rights to gain an unfair competitive advantage.

In a swipe at Mr Johnson, he said it would not be “credible” for the EU to turn up to the COP26 climate change summit hosted by the prime minister in Glasgow in November if it had agreed to a deal which allowed environmental corners to be cut.

On the key issue of financial services, Mr Barnier said: “I read in the Financial Times recently that London must retain its primacy as a hub for wholesale financial markets without becoming a rule-taker of the EU and European regulation. As a former commissioner in charge of financial services, allow me to question that.

“Why should we accept the profits stay in London while the EU carries the risks?

“The UK may not want to be a rule-taker. OK, but we don’t want to be the risk-taker.

“When the next financial crisis strikes, who will foot the bill? I doubt the UK will foot it for the EU. That’s why the EU must take responsibility for its financial regulation, supervision and financial stability.”

Mr Barnier’s comments came a day after the EU published its official negotiating mandate for the upcoming talks, which dropped a provision demanded by the UK for the completion of mutual assessments of each other’s financial regulations by the end of June.

He appeared to confirm that Brussels will not accept London’s call for a “permanent equivalence” deal under which each side would accept the other’s regulatory system as compliant with its requirements for decades to come.

From 1 January next year, UK-based companies will have to establish themselves in one of the 27 EU member states in order to benefit from “passporting” rights to sell financial services across the single market, he said.

And he said that firms like credit rating agencies which wish to operate with the 27-nation bloc will have to apply for Brussels to grant them “equivalence” status.

“We will do so when it is in the interests of the EU, our financial stability, our investors and our consumers,” said Mr Barnier. “ Those equivalences will never be global or permanent, nor will they be subject to joint management with the UK. They are and will remain unilateral.”

After the New Year, the UK will no longer be able to grant marketing authorisation for products like pharmaceuticals or cars for the European market, he said.

And, in a mark of the friction to be introduced into the UK’s export trade as a result of trade, he said that British goods will not escape checks and controls even if there is a free trade agreement - and could be subject to tariffs and quotas if there is not.

Checks will focus particularly on “rules of origin” in order to avoid the risk of the UK becoming “a kind of assembly hub for goods from all over the world allowing them to enter the market as British goods”, he said.

“We need to prepare ourselves for what will happen on 31 December,” said Mr Barnier. “Because regardless of whether we agree between now and then, there will be definitive changes.

“All goods coming from the UK - just as they do from China and the US - will need to be checked at the border of the single market to protect consumers and protect businesses.

“Those checks will be put in place. The Netherlands have recruited some 700 customs officials, France a similar number, Belgium 400.”

Mr Barnier said Brussels respects British sovereignty and is ready to believe UK assurances that it will maintain equivalent or better standards than the EU after Brexit.

“I don’t believe that the UK will become some sort of Singapore-on-Thames,” he said.

But he added: “That means it should not be a problem for the UK to agree on a number of ground rules… Every preferential trade agreement sets terms and conditions for opening up markets. The logic is simple.”

Only by agreeing a level playing field can the EU and UK ensure that “neither side will use unfair subsidies or grant derogations on industrial emissions or labour standards to win industry from the other,” he said.