The City of London Corporation has responded with cautious approval to chancellor Sajid Javid’s statement that post-Brexit financial services trade with the EU should be on the basis of “outcome-based” equivalence of rules.
The chancellor has faced a backlash from car manufacturers and business bodies, however, after he told the Financial Times that the UK will diverge from EU regulations after Brexit and said firms will have to “adjust”.
The UK and EU have until the end of the year to thrash out a free-trade agreement. The “political declaration” agreed in October said Britain should be able to access the EU’s financial markets using a “third-party equivalence” system, which would deem Britain’s regulations to be in alignment with the bloc’s.
Fleshing out his post-Brexit plans, Javid said on Saturday that the UK should simply ensure its rules produce the same outcomes as the EU’s. This approach would give Britain more leeway in making its own financial services rules, rather than simply incorporating EU rules wholesale. There is no guarantee the EU will agree, however.
Catherine McGuiness, policy chair at the City of London Corporation said: “Securing an ‘outcome-based’ equivalence of rules as suggested by the chancellor would be a step in the right direction.”
She said the current third-party equivalence system the EU offers to countries such as Japan is “patchy and prone to politicisation”.
A spokesperson from banking body UK Finance said Britain and the bloc should maintain integrated financial markets without “the UK becoming an EU rule-taker by building a clear institutional mechanism for regulatory dialogue”.
Miles Celic, chief executive of The City UK, said 2020 should “be used to set up the structures” to ensure “constructive regulatory and supervisory cooperation”.
Javid made clear that “there will not be alignment” with EU rules on trade in goods. The EU has warned that this approach will limit British access to its markets.
This position caused the Society of Motor Manufacturers and Traders (SMMT) to warn that any disruption to the car industry’s complex cross-border relationships could cost “billions”.
SMMT chief executive Mike Hawes told the chancellor that the industry’s “priority” is to stay closely integrated to safeguard “UK manufacturing and consumer choice”.
Carolyn Fairbairn, director general of the CBI, said that although the UK should be free to diverge from EU rules, it should not be treated as an “obligation”.
She added: “For some firms, divergence brings value, but for many others, alignment supports jobs and competitiveness – particularly in some of the most deprived regions of the UK.”