Above, file image of Michel Barnier © European Union, Source: EC - Audiovisual Service / Photo: Lukasz Kobus
The EU's Chief Negotiator Michel Barnier warned financial services firms based in the UK that they should make rapid preparations to ensure they are ready for the loss of passporting rights into the EU come January 01.
The trajectory of trade negotiations - and existing commitments made by the UK to diverge from EU rules and regulations - means that UK-based firms will no longer be able to operate unfettered in the EU, with Barnier telling the Eurofi General Assembly that financial equivalence is not part of the current negotiations.
“The 1 January 2021 will bring big changes. UK firms will lose the benefit of financial services passports. This should not come as a surprise. We have been warning about this for the past 3 years,” said Barnier.
The UK has a substantial financial services industry which delivers a trade surplus for the country (as it earns more foreign exchange than it pays out), and the hit to the sector by Brexit has long been a source of anxiety for financial services businesses.
Barnier said that UK-based firms would therefore need to ensure they have a meaningful legal presence in the EU in order for them to continue trading within the bloc.
"The UK is trying to keep as many Single Market benefits as it can. It would like to make it easy to continue to run EU businesses from London, with minimal operations and staff on the continent," said Barnier. "We will only grant equivalences in those areas where it is clearly in the interest of the EU; of our financial stability; our investors and our consumers."
What does this mean in practice for financial services firms?
"It means that you need to get ready for 1 January 2021! We now know that the transition period will not be extended. The EU was open to an extension. But the UK refused. It is the UK’s choice," said Barnier.
Barnier says that in some industries such as insurance, commercial bank lending or deposit-taking, EU law does not provide for the possibility to award equivalences that would grant market access to third-country firms.
In these areas, if UK firms want to provide services in the EU, Barnier says they must ask for an authorisation in the EU or comply with all the relevant national regimes of those EU Member States where they want to continue to be active.
"Nothing in the agreement that we are negotiating will change this!" said Barnier. "These are automatic, mechanical consequences of Brexit. If you are not yet ready for these broad changes that will take place – whatever happens – on 1 January 2021, I can only urge you to speed up preparations and take all necessary precautionary measures!"
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