City Revamp Puts Brexit Finance Deal on Ice, EU Lawmaker Warns

The U.K.’s plan to review its financial rulebook undermines prospects of a deal with the European Union on post-Brexit market alignment, according to a leading EU lawmaker on the issue.

“If the U.K. financial services framework is in flux like that, I cannot see the EU granting equivalence,” Markus Ferber, a German member of the European Parliament, said in an email. “The U.K. government must be aware that such a move would dramatically reduce the chances of a swift equivalence decision.”

Ferber’s comments came in response to U.K. Economic Secretary John Glen, who said in an interview with Bloomberg this week that the government is preparing to consult businesses on “detailed proposals for wider reform to the capital markets” in the summer. The minister said he wants the project to be “as broad and as inclusive as possible,” and the review will look at changes to market structure, transparency rules, as well as commodities.

The aim is to reduce costs and burdens for firms while maintaining high standards of regulation, Glen added.

The review “makes clear that we want to compete against the EU, not cooperate with it,” said Rob Moulton, a London-based partner and global co-chair of the financial regulation practice at Latham & Watkins.

The proposed review points to post-Brexit alignment for financial services dropping down the U.K. agenda. Securing so-called equivalence rulings has long been a prime objective of the City of London. But progress has been slow.

While the U.K. granted the EU equivalence in 17 areas, the bloc has so far only reciprocated in two, and the continuing uncertainty has been a source of frustration. Glen’s comments were the latest sign that the U.K. views any equivalence decision as unlikely and is pursuing its own path.

The European Commission, which is in charge of equivalence decisions, declined to comment on the U.K. review.

Without alignment, London-based finance firms that wish to do business inside the EU could be saddled indefinitely with the added complexity and cost of supporting operations in both the U.K. and the bloc.

But comments such Glen’s and recent remarks by Bank of England Governor Andrew Bailey casting doubt on the value on equivalence at all costs point Ferber to only one conclusion.

“The U.K. has written off the prospect of financial services equivalence altogether,” Ferber said and “replaced it with a strategy of fierce competition for business.”

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