The City has blasted the government's new blueprint for Brexit, after it was revealed the preferred model for financial services has been dropped.
The long-awaited Brexit white paper was published early this afternoon. Although much of the 100-page document dealt with matters that had been outlined following Chequers, the plan to drop mutual recognition as the UK's negotiating position for financial services has come as a shock to the industry.
Policy chairman of the City of London Corporation Catherine McGuinness was scathing.
“Today’s Brexit white paper is a real blow for the UK’s financial and related professional services sector," she said.
“With looser trade ties to Europe, the financial and related professional services sector will be less able to create jobs, generate tax and support growth across the wider economy. It’s that simple.
“The sector has been clear since the referendum: Equivalence in its current form is not fit for purpose so any “enhancements” to this regime would have to be substantial.
“As the EU’s gateway to capital, the UK is a significant trading partner for the bloc. It’s in the interests of households and businesses on both sides of the Channel that an ambitious future trading relationship, covering services as well as goods, is secured.
“Failing to secure such a deal would put up unnecessary trade barriers and runs the risk of fragmentation of financial markets, increasing costs and reducing choice for consumers."
Miles Celic, chief executive of TheCityUK, echoed McGuinness' concerns, saying it was "regrettable and frustrating" that mutual recognition had been dropped "before even making it to the negotiating table".
He added: "In hundreds of discussions across the EU, the industry has never come across an unanswerable technical or commercial barrier to this approach. The EU’s objections have always been political.“Our priority now is to examine the proposals in the White Paper and engage with government on how this new approach can be made to work in the interests of our customers. We are reassured that the government continues to reject the current form of equivalence. It does not meet any of the requirements for success.“Brexit was always going to result in access to the EU market being more difficult. Therefore, an effective and secure future regulatory relationship is vital. It is now urgent that we make rapid progress on the negotiations, both around the future relationship and on immediate issues for customers such as contract continuity.”
Iain Anderson, chair of City lobbists Cicero, said: “The proposals on financial services mark a distinct policy shift from what was previously set out by the chancellor Philip Hammond during his Canary Wharf speech earlier this year.
"Having championed a future arrangement based on the principles of mutual recognition, whereby the UK would have continued access to EU markets by maintaining the same regulatory outcomes but through different means, the government is now proposing an alternative future relationship based on the equivalence regime.”
But not everyone was totally dismissive.
Chris Cummings, chief executive of the Investment Association, said it was "clearly disappointing" that mutual recognition had been ruled out. However he added that a solution based on enhanced-equivalence "can deliver a deal that works for savers in the UK and across Europe, and for the asset management industry that supports them".
Adam Marshall, director general of the British Chambers of Commerce (BCC), told City A.M.: "Businesses have been waiting a long time for a clear and comprehensive sense of how the UK sees its future relationship with the EU - the challenge now is to turn that into something that answers business' questions.
"Nothing has changed as a result of the white paper because we need to go from ambitions to concrete answers. The next three months will be absolutely critical."
He urged the EU to join the UK in "really cracking on towards a deal", saying: "That requires the EU side being as pragmatic as the UK is trying to be."
David Balston, director of policy at the Chamber of Shipping, echoed this, saying the EU must "get serious and stop being prisoner to its own dogma".
He said: "The UK is being constructive, collaborative and realistic. If the EU dismisses these proposals, as it has previous iterations, or tries to push the UK even further, then the risk of a no-deal Brexit will rise dramatically.
"If that comes to pass it will be because of their own intransigence, and they should be under no illusions: a no-deal scenario would significantly damage the European economy as well as the UK’s.”
Stephen Martin, director general of the Institute of Directors, agreed it put "some vital meat on the bones of the Chequers plan".
He added: "The government has provided more clarity on its approach to financial services, and we look forward to them doing the same for the rest of the services sector... EU negotiators now have specific details to build upon, and we strongly urge them to respond constructively to the White Paper so that progress can be made for the benefit of both sides.”
UK Finance chief executive Stephen Jones said: "As today’s paper makes clear, simply relying on existing equivalence arrangements will not provide financial institutions with effective market access that enables them to serve their customers. The government is right to want to propose a new economic and regulatory arrangement which seeks to strengthen and expand the current third country regime."
But he added: "Given the limited time available it is vital that both the UK and EU27 negotiators come to the table and focus on ensuring a legally enforceable agreement, delivering enhanced and expanded third country arrangements that enables meaningful cross-border market access in financial services. In this way firms on both sides of the Channel can continue to serve business and clients across the UK and Europe without risking financial stability.”