Britain’s government is ready to push for the kind of Brexit plan for financial services that the City of London has long favored, but which has already run into opposition in Brussels, two government officials said on Friday.
London is expected to signal in the next few weeks that it wants a mutual recognition system to regulate financial services after Brexit, in the hope of preventing a hit to the City of London’s access to the bloc, they said.
“It is obviously in everyone’s interest to not just totally turn on its head the pan-European banking system,” one of the officials said. “Everyone has a lot to lose from this if we can’t get a deal.”
Bank of England Governor Mark Carney has previously said Britain and the EU should adopt a system of mutual recognition or run the risk of a hit to financial services across Europe.
With little more than a year to go before Brexit, many banks have begun activating contingency plans to move some operations out of the country.
Frustrated that there was little sign of how Britain’s government intended to protect the industry, London bankers came up with their own plan to the keep the single market open by Britain pledging to honor global standards.
But Brussels has rejected that industry proposal, meaning London’s bankers may have to rely instead on what is known as the equivalence system for regulation.
That legal mechanism allows countries from outside the EU to access the single market in limited circumstances. Access is patchy and can be revoked at short notice.
The government officials said that the mutual recognition plan was still favored by London because it would retain access for firms based in Britain to the EU’s single market while allowing some flexibility from EU rules.
The announcement could also ease the concerns in the finance industry that the government does not have a plan for the sector, the officials said.
One of the government officials said there were reasons to believe that Britain’s favored outcome was possible.
“The EU has never struck a deal with someone before where it has already had the exact same regulatory equivalence,” the official said.
“Secondly the commercial imperatives are 180 degrees different from a normal trade agreement. Normally we start from a status quo and say ‘wouldn’t it be great if we could get closer’.”
The Financial Times newspaper reported the government’s plan to endorse the mutual recognition plan earlier on Friday.
A spokeswoman for the finance ministry declined to comment on the reports which she said were speculation.
A final decision on the best model to pursue has not yet been taken, the government officials said.
Britain’s vast financial services sector looks set to be one of the most divisive areas in the Brexit negotiations. Britain wants a generous deal while the EU insists that Britain’s red lines — such as ending the free movement of workers from the EU — make that impossible.
Britain is home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($7.5 trillion), or 37 percent, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris.
(Additional reporting by Carolyn Cohn; writing by William Schomberg; editing by Toby Chopra)
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