The European Union's Brexit negotiator said that UK banks will face similar restrictions to US institutions after divorce, and issued a clear warning that markets should prepare for disorganized disorganization.
"Why the equivalence system, what works well for American industry, not for the City?" Michel Barnier said in a speech in Sofia on Thursday, according to a text posted by his office. That gives a new blow to the British government, which is fighting for better access to the European single market for its banks.
With 11 months before the United Kingdom leaves the EU, the government expects an agreement based on the "mutual recognition" of each one's financial regulations. But the EU says that this is unacceptable because of the unwillingness of the United Kingdom to adhere to the rules of the single market.
On the other hand, "equivalence" would make the EU decide unilaterally that the laws of the United Kingdom are as strict as their own, but it can be withdrawn in the short term and the United Kingdom says it is inadequate.
Read how banks in the United Kingdom have a model of the United States. UU That they can follow
Without a special trade agreement with the EU on financial services, the US banks. UU They hardly suffer. His dominance of the investment banking market was underscored on Thursday with the announcement that Deutsche Bank AG is abandoning its ambitions to be one of the world's leading securities firms.
US banks operate in Europe mainly through subsidiaries and branches. Faced with the loss of the so-called single market passport through its operations in the United Kingdom, large US firms are in the process of establishing units on the continent to ensure they can continue to serve their customers after Brexit. The biggest victim will be the City of London, instead of the individual institutions.
Prepare for the worst
Barnier warned the audience, composed of bankers and financial lobbyists, that if a total divorce agreement is not reached, the 21- The planned monthly transition for the period immediately after Brexit will not it will happen Banks, companies, regulators in the United Kingdom and the UK government plan to use that time to prepare for the new regime.
Financial markets should "expect the best but prepare for the worst," Barnier said. They should "continue to prepare for all scenarios."
"No one should underestimate the risk of disagreement," he said.
The problem of the Irish border remains a major obstacle in divorce talks, and there are few signs of progress before an informal June deadline. The EU and Dublin insist that without an agreement on the border there can be no general agreement.
Barnier also spoke about the remuneration of bankers before the financial crisis, which "established the wrong incentives and allowed excessive risk-" The EU responded by imposing a controversial salary cap, to which the officials of the United Kingdom was fiercely opposed. That has led to speculation that the UK would get rid of the limit after Brexit, a measure that could complicate any determination of equivalence in banking rules.
Barnier discredited the line often taken by British lobbyists that the EU needs the city of London and will suffer if it weakens. "This is not what we hear from the participants in the market, and it is not the analysis that we have made ourselves," he said.
He welcomed the fact that the United Kingdom has recognized that banks can no longer use the passport: a system that opens markets of all EU nations to companies based on only one of them. That's because the UK wants to end free movement and the EU says that excludes membership in the single market.
But Britain now needs to realize that it will also lose the benefits of membership.
"Market participants should realize that this will not be the usual"