The European Commission has not included financial services in an emergency no-deal contingency plan should the last ditch Brexit trade talks fail in Brussels on Sunday 13 December.
Why? On the grounds that further market access in this area does not hinge on the trade talks but on separate work on “regulatory permissions”, according to a report by The Financial Times.
Those working in the City of London would argue that its market rights need assurance before the end of 2020 and that Brussels should clarify what market rights the City of London can expect.
With no contingency plan in place for the financial services industry, either brought forward by the UK or the EC, the EU may not provide the UK access to the EU market if a trade deal is not decided by the end of the year. This gap in the negotiations means that 26 areas of the financial services sector will be hanging in the balance.
Diplomats for the EU’s member states were told in a behind-closed-doors meeting in Brussels that the failure of the British government to offer assurances over regulatory changes after 1 January was holding up the so-called “equivalence decisions”, according to a Guardian news report.
A European commission official said, according to the report, that it was unclear whether it was in the EU’s interests to go any further in providing access to the European market for those working out of the UK given the uncertainty.
UK-based firms will lose automatic passporting rights at the end of the year which allow them to offer services across Europe. If they haven’t already, they will need to set up operations in the EU or rely on the European Commission to unilaterally find UK regulations to be equivalent to the Brussels rulebook in order to continue to serve EU customers.
The commission warned national governments not to undermine the EU position that only the bare minimum of contingency measures should be put in place, said the FT report. It also appealed to capitals to use their collective leverage to fight for the EU’s interests in a no-deal scenario.
“At any rate, the EU collectively has a stronger bargaining power than each member state acting alone,” the commission said. “This bargaining power benefits all member states. It must be used to ensure a level playing field between the EU and the United Kingdom.”
The contingency plan: what has been put in place
The European Commission has put forward a set of targeted contingency measures ensuring basic reciprocal air and road connectivity between the EU and the UK, as well as allowing for the possibility of reciprocal fishing access by EU and UK vessels to each other’s waters. The aim of these contingency measures is, according to the EC, to cater for the period during which there is no agreement in place.
While the Commission will continue to “do its utmost” to reach a mutually beneficial agreement with the UK, there is now significant uncertainty whether a deal will be in place on 1 January 2021, said the Commission in a statement.
EU President von der Leyen said on 10 December, “Negotiations are still ongoing. However, given that the end of the transition is very near, there is no guarantee that if and when an agreement is found, it can enter into force on time. Our responsibility is to be prepared for all eventualities, including not having a deal in place with the UK on 1 January 2021. That is why we are coming forward with these measures today”.