How Will EU Treat The City After Brexit? The Debate Is Still On

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European Union countries are still debating exactly what kind of access to give U.K. banks after Brexit, but some are pushing for the bloc to agree a fixed position as early as October.

While chief negotiator Michel Barnier has said the U.K.’s plan for the City won’t work, several countries want to take some of Britain’s proposals on board, three EU officials said. The bloc is currently rewriting its rules for how to treat non-EU banks, and some governments would like U.K. ideas to feed into that.

The EU has been clear since March that it wants full autonomy and control over how U.K. banks operate in the bloc after Brexit, rejecting proposals for joint oversight and insisting that the system U.S. banks are subjected to, known as equivalence, is all that’s on offer. But back in March, France and Luxembourg -- on opposite ends of the spectrum of opinion about how harshly to treat the City -- drafted a compromise document that called for "improved equivalence."

It’s a phrase that was intentionally ambiguous and the debate -- a nuanced one -- continues, officials said.

Define or Postpone?

One of the key questions in the Brexit process is how much detail about the future relationship -- including the crucial issue of financial services -- will be pinned down before the U.K. leaves. Brexit is being negotiated in two phases -- first the divorce agreement and then the final trade deal after Britain has left. The divorce agreement will be accompanied by a political statement about what each side wants from the future trade deal, and there’s debate about how detailed and definitive it should be.

Some countries, particularly the U.K.’s closest trading partners, want questions about the future economic relationship left open, to be worked out during the 21-month transition period after Britain has left. They hope the U.K. government will gradually shift its red lines and opt to remain closer to the bloc. But other countries, along with the European Commission and the European Parliament, want a more detailed plan before Britain’s departure, the EU officials said.

That could be bad news for Britain. Even the softest EU position will probably mean the U.K. has to make more concessions. It also means that when U.K. lawmakers vote on the Brexit deal they’ll do so knowing how little the EU is giving away, they said. Both sides are aiming for a divorce deal in October which would then go to Parliament in the fall.

Read more: Fewer Finance Jobs Than Feared to Leave London After Brexit

The U.K. also says publicly this “political declaration” needs to be comprehensive enough to convince lawmakers to vote in favor of the Brexit deal and accept the estimated 39 billion-pound ($51 billion) financial settlement. One U.K. official said the plan needs to be “wide-ranging and precise.” Another said it could run to about 70 pages.

A final decision hasn’t been made and will be the topic of discussion in U.K.-EU talks over the next three months, the EU officials said. The political declaration is designed to form the basis of full negotiations on a trade deal.

The government’s “White Paper” on the future relationship published this month envisages the U.K. staying aligned to the EU’s rules on goods but not services and mirroring much of the bloc’s customs framework “as if in a combined customs territory.” EU officials say they are opposed to many aspects of the U.K. plan. Barnier welcomed it in public last week, even as he raised many concerns.

On financial services, the U.K. wants a beefed-up version of the EU’s existing equivalence model. The U.K. has suggested joint oversight of the system that would make it more difficult for U.K. access to be withdrawn. Under current rules the EU has sole authority to cut access off at 30 days’ notice -- a setup banks say is unwieldy, not good for financial stability, and can be open to political meddling.

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