A senior City figure has warned that the UK risks being stuck with a “token, minimalist” deal on financial services as part of the post-Brexit agreement with the EU in October.
The source, who is privy to conversations with key players on both sides, told City A.M. that while services are likely to be referenced within the final deal, it will be “just a slightly uninspiring, lowest-common-denominator” inclusion that will result in “dramatically less” access than is currently enjoyed.
“They will say it’s the most comprehensive deal the EU has ever done on services with any third country and that will be true, but it will not only be less than we have through the Single Market, it will be dramatically less,” he said.
Government figures including Brexit secretary David Davis, chancellor Philip Hammond and even Prime Minister Theresa May have pressed the case for the City to get a deal, the red lines laid down by either side make it difficult to reach a compromise.
The EU is pushing for equivalence, which would leave the UK as a rule-taker. An “enhanced” approach - which could lean towards mutual regulatory alignment favoured in the City and Westminster - would still give the EU ultimate control to unilaterally withdraw access, which would leave the UK vulnerable.
Although there are individual member states who would back the UK - most notably Luxembourg, whose economy is heavily dependent on a financial services in which the UK plays a critical part - there is still a sense that the Commission is, and will continue to, set the tone in negotiations. France, who has repeatedly described as “hostile” to the UK, remains a major antagonist in the negotiations, and one that is growing in strength in light of a weakened Angela Merkel.
The nature of a financial services agreement remains subject to considerable debate. Earlier this year Jonathan Hill, the EU's Commissioner for financial services for two years until the referendum, told the House of Lords it made no sense to "subcontract all our rule-making to someone else" in the hope of maintaining current levels of access. Speaking during a debate on the Withdrawal Bill, the peer added "We must surely place greater priority on being able to shape our own future than on preserving the status quo, particularly when technological innovation is itself going to change the status quo, whatever we decide on Brexit."
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Yesterday Brexit secretary David Davis told the WSJ CEO Council that the team was seeking "to develop a chapter" on services within the deal, which will be voted on by UK and EU parliaments.
A UK government spokesperson said: "The UK government has been clear in seeking a comprehensive and ambitious deal with the EU, which should cover financial services and protect the role of the City of London as a top global financial centre.
“We are confident of securing a good deal on financial services. The EU and UK start from the point of complete regulatory convergence, uniquely integrated financial markets, and an offer by the UK to maintain an appropriate level of regulatory coherence after Brexit."