Brexit Deal Said to Confirm U.K. Banks Losing Easy EU Access

(Bloomberg) -- The U.K. finance industry’s access to the European Union was downgraded, as expected, in the draft Brexit deal approved Wednesday by the British cabinet, according to a person familiar with the matter.

Under the terms of the draft deal, Brussels officials will have the authority to block access to British financial institutions if they determine there’s not a level regulatory playing field, the person said. The arrangement, known as "equivalence," is how the EU allows non-EU companies to sell services in the bloc; equivalence can also be revoked on short notice.

As part of the deal, the European Union wouldn’t “simply withdraw permission to trade overnight or in an arbitrary manner,” ITV News reporter Robert Peston said in a post Wednesday afternoon on Facebook. Most investment-banking services could continue unchanged, he said. According to Peston, there’s one key concession on equivalence as businesses will have time to prepare if the permission is revoked. That process could give them months, Peston reported.

Any Brexit deal based on equivalence would have serious limitations for U.K.-based finance firms, according to Catherine McGuinness, an official at the City of London Corporation, which governs the financial district.

"The problem is this system is only partial -- it covers only a third of what happens in the City; really basic things, like banking payments systems, are not covered," she said on the BBC’s Radio 4 program Wednesday. "It’s precarious, because an equivalence decision can be withdrawn on as short as 30 days’ notice."

In a statement at about 7:20 p.m. in front of 10 Downing St., Prime Minister Theresa May announced her cabinet had approved the draft agreement, setting the stage for an unpredictable vote in parliament. The deal includes a standstill period, known as the transition, which will maintain the status quo for about two years until a permanent accord is in place.

--With assistance from Tim Ross.

To contact the reporter on this story: Keith Campbell in London at k.campbell@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, James Hertling, Patrick Henry

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