LONDON- Direct access to the European Union after Brexit may not be worth the cost if Britain has to align itself with EU rules covering only a narrow range of activity, financial industry officials have said.
The UK financial sector’s single biggest customer is the EU and it currently enjoys “passporting” or unfettered access to the bloc. But this will end after Britain exits the bloc.
Future trade will be based on “equivalence”, the EU’s system of access to foreign firms that Brussels deems to have home rules as strict as those in the bloc.
“The UK will be the most equivalent country in the world,” Nausicaa Delfas, executive director international at Britain’s Financial Conduct Authority, told Reuters on Monday.
She urged Brussels to take a technical and not a political approach to determining UK equivalence.
Equivalence-based EU access amounts to 5-10 percent of cross-border business under passporting, and Britain wants Brussels to “enhance” the system to make it more predictable and transparent.
This could include a “mechanism” to deal with any divergence in rules as Britain does not want to become a permanent “taker” of EU regulations.
Antony Manchester, a managing director at BlackRock, said weighing up the advantages of equivalence would be easier for Britain if the EU were to enhance it.
“Otherwise you end up with a situation where it’s all or nothing,” Manchester told a City & Financial conference on Brexit. “I hope that the reality of interdependence creeps in… otherwise you end up with closed European markets.”
Over 300 banks, insurers and asset managers in Britain have opened EU hubs to serve their customers directly from inside the bloc, which limits the usefulness of Britain pushing hard for equivalence.
The UK financial sector proposed a broader and novel “mutual recognition” approach two years ago, whereby the UK and EU would agree to accept each others’ rules. But the EU shot it down – believing Britain should not enjoy the same privileges outside the bloc as it did inside.
“Asking the EU to change equivalence is actually equally ambitious as the mutual recognition model,” said Conor Lawlor, director of Brexit policy at UK Finance, a banking body. – Reuters