UK Edition
Michel Barnier tells US business that EU markets remain open to financial services despite Brexit
Michel Barnier has moved to reassure American business leaders that the European Union will not shut London-based US financial giants out of its markets after Brexit, despite the City facing tougher treatment at the hands of Brussels regulators.
“I want to be graphic. Open markets for financial services are an asset for the EU and will remain so in the future,” he said in New York on Tuesday after declaring he wanted to give “the European voice on Brexit”.
He added, “To be very clear, we are in the EU, the most open jurisdiction in the world for financial services.”
London is by far the pre-eminent financial centre in the EU but Paris and Frankfurt are looking to exploit the capital’s loss of market access to the bloc after Brexit. The EU has ruled out including financial services in any future trade deal between Brussels and Britain.
When Mr Barnier was asked about the possible disruption to markets from Brexit, he responded firmly, “who has decided to leave?” and said the EU had contingency plans for a no deal Brexit. “We are negotiating to avoid a no deal but it can still not be excluded,” he added.
The Brexit negotiator told his audience of transatlantic business executives at the European American Chamber of Commerce that British-headquartered firms would lose their passport to the EU’s Single Market after the end of the transition period. Britain has accepted the loss of the passport.
“Many US financial institutions decided to establish European hub in London to have these passporting rights and to service client across Europe,” Mr Barnier said before ruling out British calls for financial services to be governed by “mutual recognition”.
Mutual recognition is a system whereby regulators on both sides recognise each others’ rules and standards achieve the same goals but in different ways.
“The UK needs to understand the EU cannot accept such mutual market access without all the safeguards underpinning it,” said Mr Barnier, referring to the EU regulations and the European Court of Justice.
Allowing access to the EU’s market on the basis of a licence granted by a non-EU regulator was one of Brussels’ red lines, he said.
“I do not know of any country in the world that would accept such a loss of sovereignty,” he said before describing Brexit as “a lose-lose game”.
Instead Mr Barnier, who was responsible for drafting EU banking regulation during the financial crisis, said that financial services would be governed by “equivalence”.
Equivalence decisions are taken by the European Commission and can be withdrawn unilaterally on just 30-day notice, which the City of London believes is not enough to give its businesses certainty.
But Mr Barnier, who pointed out Wall Street was nearby, said that the commission had taken 200 equivalence decisions including for US companies. “Why would this equivalence system, which works for the US, not work for the UK?” he asked.
The EU has signalled it will update its equivalence rules for non-EU countries. Brussels has already moved to beef up the monitoring powers of its pan-EU financial supervisors in preparation for Brexit.
The EU fears that a post-Brexit Britain will slash the red tape British regulators were influential in drafting, which it believes could leave the bloc more vulnerable to financial shocks caused by high-risk casino banking on its doorstep.
Mr Barnier told the business leaders that “everything is possible”, including Brexit being reversed, before the March 29, 2019 deadline but that any British about-face would need the unanimous support of the 27 EU member states to take effect.
“Everything is possible from now to March. Everything will remain possible,” the EU’s chief Brexit negotiator said. “Everything is possible but any change will require the decision by 27 plus 1.”
“I do not see the political conditions,” he said when asked if the resignations of David Davis, his former counterpart, and Boris Johnson could lead to Brexit being stopped.
“I had with David Davis a frank and cordial relationship and now I will work next Monday with this negotiator appointed by Mrs May,” he said, referring to the next round of Brexit negotiations in Brussels.
Asked if the Brexit negotiations could form a template for other countries to use to leave the EU, Mr Barnier admitted it could but added: “Look at the debate in the UK. Look. No comment.”
Ahead of the publication of Thursday’s Brexit white paper by the British Government Mr Barnier reiterated some of the EU’s red lines on Brexit.
Speaking at an earlier event at the Council on Foreign Relations in New York, Mr Barnier repeated that the single market and the four freedoms - goods, capital, services and labour - were the “the fundamental principles on which the EU is based” and would be defended.
“I can tell you it will be crystal clear at the end of this negotiation that the best situation and the best relation with the EU will remain to be a member of the EU,” he said.