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31 January 2018

Financial Times: EU rejects Brexit trade deal for UK financial services sector

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EU Brexit negotiators have set out a tough line on financial services, ruling out an ambitious trade deal for the lucrative sector and arguing that Europe would benefit from a smaller City of London, according to confidential discussions among the other 27 EU member states.

In a rebuff to the UK, which is seeking to put financial services at the heart of a trade deal with the bloc, an internal EU27 meeting this week concluded that future arrangements should be based on “equivalence” — the limited and revocable access given to third-country institutions — rather than a wide-ranging new pact.

At present, such provisions give financial groups from countries such as the US conditional access to the single market for some services.

“There was a strong commission message that there would be no special deal,” said an EU diplomat briefed on the discussions — a first attempt to thrash out the bloc’s position on the issue before negotiations with Britain start in March. “The UK is being told from the beginning what the situation is.”

Another EU diplomat said: “They are out of the internal market, that’s it. There can only be a much less ambitious agreement.”

Ensuring that financial services are not badly hit by Brexit is a top priority for the UK, since the sector is Britain’s biggest source of exports and tax revenue.

Theresa May’s government has also argued that if the City were damaged it would adversely affect financial stability and EU groups’ cost of financing, while contributing to the fragmentation of the sector.

Secret Brexit paper – how the numbers compare But participants said that in the EU27 meeting the European Commission played down the risks of cutting off the City to EU businesses, saying that the financial sector was mobile enough to adapt.

They added that the commission maintained that a smaller City could benefit financial stability and the development of capital markets in the EU27, an argument that Spain also vocally supported.  [...]

Germany, Sweden and Luxembourg cited the benefits of continuing co-operation with the UK, while France argued that the costs of a hard break would be limited and easy to contain.

Like the commission, Paris said there was a need to prevent the UK undercutting the bloc’s financial rules, and urged Brussels to encourage London-based companies to trigger relocation plans.

According to one person briefed on its thinking, the commission will send out notices warning a wide range of different financial groups to be prepared for Brexit and the lapse of the UK’s rights as an EU member.

These include banks and payment service providers, insurers, asset managers and brokerages, as well as auditors and credit-rating agencies. [...]

Full article on Financial Times (subscription required)

© Financial Times

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