Conflicting signals from Brussels for Financial Services.
London and Brussels
“No battle plan ever survives first contact with the enemy,” was the apt and slightly exasperated introduction to the Irish Ambassador - a guest on to Radio 4 this morning - as a lead into the question of his view on where we stand.
For UK financial services, the situation is far from clear.
Yesterday, Barnier's advisor and Brexit negotiator ally, Stefaan De Rynck, is quoted as saying that EU legislation includes provisions to allow financial firms the right to operate within the EU 27 despite not being based in a member of the EU.
"We have in our financial service legislation equivalence provisions for investment firms, trading venues, for derivatives. In terms of market access, it is very limited - but the EU does, in terms of market access for third countries operators, [allow] unilateral equivalence decisions."
Is this a lifeline that could keep UK financial firms to continue trading within the EU bloc despite Brexit?
This morning, Barnier was unequivocal: “There is not a single trade agreement that is open to financial services. It doesn’t exist.”
Barnier said that the loss of access for financial services – accounting for 80% of UK trade surplus - is a consequence of the U.K.’s decision to leave the EU single market. These red lines are what “the British have chosen themselves. In leaving the single market, they lose the financial services passport.”
Trade talks will begin in the New Year after the Prime Minister came to an agreement on the settlement terms in Brussels. Meanwhile, the EU has issued a three-page document outlining its harsh guidelines for negotiating the future relationship with Britain, insisting the final deal can only be “concluded once the UK has become a third country”.
We can only hope that the more optimistic note sounded yesterday in Chatham House holds sway - European regulation includes provisions that allow the EU Commission to recognise the regulatory framework of non-EU countries as "equivalent" to the corresponding EU regime.
Meanwhile businesses – and especially those in the financial sector – need to run multiple scenario planning and monitor discussions closely – being ready to configure their post-Brexit strategies to the exigencies of the battlefield – riven by conflict, conspiracy and cock-up.
The only conciliatory note from Barnier today was an acknowledgement it may be possible to hammer out a deal in a subsequent two-year transition period. However, he noted that all 35 EU national and regional parliaments will have to ratify it. Any ‘U.K. specific’ trade agreements cannot come into force until the end of a transition period – should one be agreed.
["No battle plan ever survives first contact with the enemy,” is a quote attributed to Helmuth von Moltke, Prussian Chief of Staff before World War 1]
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