Brexit Threat to Banks Grows With Gulf Between U.K. and EU
(Bloomberg) -- Banks in Britain hoping to get easy access to European Union markets after Brexit are facing a setback after talks for a cross-border trade deal soured.
With seven months until Britain leaves the EU’s single market and customs union, the gulf between the two sides widened this week after U.K. published its draft agreement that stands in stark contrast to the EU’s long-held positions.
Lenders are planning for a future without a deal in place that would allow financial business to flow between the U.K. and the EU. Investment banks could need to move more staff, executives and capital out of London to new hubs in Frankfurt, Paris and Dublin.
“The two sides could not appear to be further apart,” said Rob Moulton, London-based partner and global co-chair of the financial regulation practice at Latham and Watkins. “That is why the financial services world continues to plan on the basis that no deal will be done, rather than on the basis of the U.K.’s proposals.”
Catherine McGuinness, policy chair for the City of London Corp., which administers London’s financial district, said the timetable for agreeing a post-Brexit deal is “becoming more ambitious.”
“We’ve still got a bit of politics to work through,” McGuinness said, adding that the industry would have liked clarity on the terms of cross-border market access in June or July.
“I think we still need to be alive to the possibility of being at the end of the transition period without a deal. I think I would urge people to focus on the no-deal cliff-edge issues,” she said.
The chances of securing a trade deal seemed to fade this week. Hours after the U.K. published its draft, the country’s chief negotiator, David Frost, said the EU was offering an “unworthy” and “low quality” trade deal and called on his counterpart, Michel Barnier, to “think again.”
The U.K.’s draft called for easy flow of financial information between the jurisdictions, reciprocal access to payment systems and assurance that back-office financial functions won’t be disrupted. Britain also sought a new Financial Services Committee of experts to resolve future disputes on regulation.
And the U.K. reiterated a desire for more sway over the so-called equivalence. The EU has said for years that it has sole power to grant the equivalence needed for firms such as investment banks to continue handling European business out of London. Both sides have pledged to make progress on the equivalence process by July.
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