EU Eyes Offering `Improved Equivalence’ for UK Financial Services After Brexit

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The European Union will consider offering the U.K. “improved equivalence” for financial services after Brexit, according to the bloc’s latest negotiating guidelines, a system Britain has rejected as “wholly inadequate.”

The addition to the draft guidelines, obtained by Bloomberg, makes clear that U.K. institutions would only have access to EU markets if U.K. rules are deemed equivalent by the EU — a unilateral approval that can be withdrawn at short notice. Equivalence means accepting rules without having a say in making them — something the U.K. government and its banks reject.

“Regarding financial services, the aim should be reviewed and improved equivalence mechanisms, allowing appropriate access to financial services markets, while preserving financial stability, the integrity of the single market and the autonomy of decision making in the European Union,” reads the draft, obtained by Bloomberg.

“Equivalence mechanisms and decisions remain defined and implemented on a unilateral basis by the European Union,” it says.

The addition is in an annex to the draft guidelines and will be discussed by EU ministers meeting on Tuesday. Earlier drafts didn’t mention financial services explicitly although they made clear that the trade agreement the EU intends to strike with the U.K. wouldn’t make special provisions for services.

U.K. banks and the government have long given up hopes of retaining passporting rights — the single market access that allows them to trade across borders. But they are now pushing for a system of mutual recognition. They want a set of rules that are more durable and not subject to unilateral withdrawal.

Chancellor of the Exchequer Philip Hammond has tried to make the case that a good deal on financial services, which allows the City of London to remain a financial hub, is in both sides’ interest. He also argues that any trade deal with the EU that excluded services wouldn’t be fair. He has described equivalence as “wholly inadequate,” saying any arrangement has to be “reciprocal” and “reliable.”

But the EU has said the U.K.’s decision to leave the single market means it can’t pick and choose the bits of the EU internal market where it wants to maintain access. It argues that financial stability is at stake, as well as the integrity of the single market.