The European Union’s finance commissioner has warned the UK that the City could be cut off from continental markets after Brexit if its regulations do not stay closely aligned.
Valdis Dombrovskis, who is set to become a vice-president of the European Commission, said access to the EU’s markets will require Britain not to “engage in some kind of deregulation”.
The comments are an indication of how difficult negotiations over a post-Brexit trade deal with the EU could be, especially when it comes to financial services.
Under Prime Minister Boris Johnson’s deal, the UK and EU have until the end of 2020 to thrash out a free-trade agreement.
Critics say this timeline is too tight to produce a good deal. They argue that the EU will demand close alignment to its standards, which could make talks with countries such as the US difficult.
Speaking to the Financial Times, Dombrovskis said the EU was willing to give Britain access through the “equivalence” system that is currently used. It requires the UK to have standards as rigorous as the EU’s, and the bloc can revoke access unilaterally.
The Latvian said alignment was particularly important in finance. “The more systemically important the market is for the EU, the more we import potential risks, [and] the closer the regulatory alignment that is expected,” he said.
Dombrovskis said “it shouldn’t be overly difficult” for the UK to gain equivalence as it currently applies EU legislation.
Johnson and his allies have argued that the current alignment of the UK and the EU would mean a trade agreement would be much easier to agree than deals the bloc has struck with countries such as Canada.
However, the Prime Minister has also argued that Britain should be looking towards countries such as the US for trade post-Brexit. Yet a powerful country like the US is likely to demand alignment with its standards, which could cause problems for an EU deal.
Dombrovskis said: “The UK should stay closely aligned with the EU.” He said that if a country “is either diverging from EU legislation, or not following up EU legislation, in this case the equivalence determination can also be withdrawn”.