Brussels warns UK over 'light touch' regulation of City after Brexit

Brussels warned Britain against deregulating the City of London or introducing “light touch” financial rules after Brexit on Tuesday.

Mairead McGuinness said that British firms would not be given access to the bloc’s Single Market unless UK rules were sufficiently robust.

The EU commissioner for financial services is responsible for granting “equivalence” to UK financial services, which is regulatory approval giving market access.

Ms McGuinness said she would not grant equivalence to 28 sectors until the UK gave more details on how far it planned to diverge from EU rules.

She said that Brussels was concerned about the risk to financial stability that a light touch regulation of the City could pose.

“Can I just say very frankly that many of us remember that era of deregulation or light touch regulation and we will not go back there again,” she said, referring to the financial crisis.

She claimed that the resilience of banks in the face of the coronavirus pandemic was thanks to the swathes of financial regulation introduced by the EU after the crisis.

Ms McGuinness said she had read about British plans to pursue a bonfire of EU regulations.

She said, “The whole purpose of Brexit was to diverge. and, you know, we need to know which road, the UK intends to diverge on and how many branches there will be on that path.”

She added, “What we want to have as effective regulation, we do not like light touch and deregulation is not on our agenda.”

Senior figures in the City and academics in the UK have warned that the longer the EU withholds equivalence, the more likely it is that Britain will diverge further and faster from EU rules in the search for new markets.

Ms McGuinness defended the EU approach as “prudent”.

Britain unilaterally offered equivalence to EU firms last year but the EU did not reciprocate.

The EU has granted UK derivatives clearing houses and central securities depositories temporary equivalence because it believes that will help safeguard financial stability.

The EU and UK are in discussions with a view to agreeing a framework for regulatory cooperation by March.

The commissioner, who is Irish and a former MEP, was speaking at the launch of a plan to bolster the international role of the euro and reduce the EU’s dependence on non-EU financial centres such as London.

“We don't expect the City of London to diminish overnight, but we would expect that over time, the financial system within the EU will be stronger because we will want to reinforce our infrastructure,” Ms McGuinness said.

Michel Barnier, the EU’s chief Brexit negotiator, was appointed as special advisor to the European Commission president yesterday,

He will advise Ursula von der Leyen on the implementation of the Withdrawal Agreement & ratification of the UK trade deal.

The commission’s UK Taskforce, which handled the Brexit negotiations, will disband on March 1 and be replaced with a new service monitoring the implementation of the agreements with Britain.