EU’s Barnier Rejects UK Plans for Post-Brexit Banking

July 1, 2020

Post-Brexit Banking

The European Union’s Chief Brexit Negotiator, Michel Barnier, has rejected the UK’s latest proposal for financial companies to operate within the 27-nation zone, adding pressure with only six months to the agreed transition period.

Barnier dismissed their requests, which he said would allow firms to keep operating from the City of London, with employees flying in and out of the EU for short business trips. The proposals could even “create a significant risk” of avoiding regulation altogether.

“There is no way member states of the European Parliament would accept this!” Barnier said in the speech on Tuesday at the Eurofi financial conference. The U.K. “would like to make it easy to continue to run EU businesses from London, with minimal operations and staff on the continent.”

Despite negotiations starting in March, the UK and EU have made little progress over plans for their overall future relationship. A fresh round of talks began on Monday, with both sides vowing to move forward in an attempt to have a deal completed before October.

Wall Street banks and the finance industry have pushed hard to be able to continue using their London hubs for investment banking and trading business with European clients. With pre-Brexit rules set to expire in December, banks are re-activating plans to move staff and business if the two sides can’t reach a new market access arrangement.

Issues also exist for the equivalent process for the EU to have open access to London firms, Barnier said. Under the EU’s equivalence rules, foreign firms can only be given access to the Eurozone, if officials in Brussels think the rules are tough enough in the companies’ home state.

While the two sides remain committed to making progress in their “equivalence assessments” this month, Barnier said the U.K. has only satisfied 4 of 28 key questions the EU has on regulations. “These assessments are particularly challenging,” Barnier said.

The U.K. has consistently argued that the regulations start at the same place in both jurisdictions, which should make the equivalence process simpler.

“The U.K. has been able to complete our own assessments on time and we are now ready to reach comprehensive findings of equivalence as soon as the EU is able to clarify its own position,” a U.K. Treasury spokesperson said.

Will Brussels be able to compete with London as a key financial centre in Europe? Only time will tell.

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