Brexit: EU rejects City plan for free trade in financial services

Britain’s finance industry came a step closer to being locked out of European markets by Brexit today after Brussels officials rejected a City plan for a free trade deal in financial services after the UK leaves.

The plan being pushed by UK financiers proposed that Britain and the EU would continue to allow cross-border trade in financial services on the basis that both sides’ regulations would adhere to international standards.

But European Commission officials have told British financiers in meetings since the start of the year that there would have to be new trade barriers for banks because the UK is leaving the single market.

“They have made it very clear to us that this is unacceptable to them,” one senior British finance executive present at one of the meetings said.

“This was our best and frankly only proposal. We don’t have a plan B.”

Michel Barnier, the European Commission’s chief negotiator, publicly ruled out a special deal for the City in December, stating that Theresa May’s red lines on Brexit made the loss of the so-called “passporting rights” inevitable.

“In leaving the single market, they lose the financial services passport,” he said in an interview with European newspapers at the time.

German government officials have however behind the scenes suggested that the UK could retain passporting rights in exchange for continued contributions to the EU budget, according to reports that surfaced earlier this month.

Over 5,400 British firms rely on passporting rights to bring in £9bn in revenue every year to Britain. The British Bankers’ Association (BBA) has said the loss of passporting would be “disruptive, costly and time-consuming”.

Stephen Jones, chief executive of UK Finance, a lobby group for the finance industry, said billions of pounds were reliant on a good deal for UK firms.

“The considerable growth in trade in services between the UK and Europe highlights the importance of this sector for our economy. It is an important reminder that any future EU-UK agreement on trade needs to provide for cross-border market access in services for the benefit of consumers and businesses on both sides of the Channel.

“The UK is currently the second largest exporter of services worldwide. Tens of thousands of customers and billions of euros of banking services are reliant on the UK remaining Europe’s most interconnected financial centre.”