Is it worth it? UK banks question EU access after Brexit

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By Huw Jones

LONDON (Reuters) – 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% 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 (NYSE:), 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.

Jon Whitehouse, group head of government relations at Barclays (LON:) bank, said that how quickly or willing the EU might be to change equivalence is a “big question”.

But the question should be whether Britain wants equivalence in the first place, and whether its cost outweighs the benefits, according to Alexandria Carr, head of European regulatory change at HSBC.

“The cost can be great and the direction of travel is increasing the cost of equivalence,” Carr said.

Brexit has prompted the EU to toughen up equivalence conditions for foreign clearing houses and for foreign investment firms, with EU supervision now becoming part and parcel of determinations.

Lawlor said it was also unclear how Britain will reconcile meaningful EU market access with not wanting to become an EU rule taker.

“There is a direct correlation between regulatory autonomy and market access. The more you have of one, the less you have of the other,” he said.

Britain’s financial services minister John Glen told the conference he wanted an “agile” regulatory approach and that Britain was weighing up equivalence in key areas “very carefully”.