City of London must face Brexit hit, Barnier tells finance chiefs

British trade negotiators will fail in their efforts to insulate the City of London from the worst consequences of Brexit, Michel Barnier warned a meeting of finance chiefs on Tuesday.

The EU’s chief negotiator said that British demands in the ongoing trade talks in Brussels were unacceptable and that UK plans to ditch EU financial regulation risked another crisis that could hurt the bloc.

UK proposals would make it easy to continue to run EU businesses from London after the end of the transition period on December 31, he said, and prevent the EU from freezing UK financial services out of the Single Market at short notice.

"I will be blunt. Its proposals are unacceptable,” he said as negotiations continued in the Belgian capital, “The UK is trying to keep as many Single Market benefits as it can.”

London remains Europe’s pre-eminent financial hub but that status is coveted by Paris, Amsterdam and Frankfurt, which hope to profit from Brexit.

“[The UK] would like to make it easy to continue to run EU businesses from London,with minimal operations and staff on the continent," Mr Barnier, said.

“It wants to ban residence requirements for senior managers and boards of directors, to ensure that all essential functions remain in London,” he added.

“We are asking for arrangements just like those the EU agreed with Japan,” a UK spokesman said, “Japan is not in the single market.”

UK financial services lose their EU “passport” to the Single Market at the end of the year. Brussels insists that future access will be based on “equivalence”, a system of regulatory approval that can be withdrawn by the European Commission unilaterally and at as little as 30 days notice in some cases.

British negotiators have called for a joint committee on equivalence decisions, which Mr Barnier said was attempting to turn unilateral decisions into co-managed ones.

“These are autonomous, unilateral tools. And, as such, they are not part of our current negotiations,” Mr Barnier said.

Last year, the commission froze Swiss stock exchanges out of the Single Market in a bid to force Bern back to the negotiating table over a new treaty governing their relationship. London and Bern said on Tuesday they would begin negotiating a bilateral financial services agreement.

Mr Barnier was internal market commissioner during the financial crisis and was responsible for much of the post-crisis regulation that was introduced by Brussels after 2008.

Mr Barnier told the Eurofi think tank that the UK planned to ditch EU financial services regulations after Brexit.

"Let us have no illusions: The UK will progressively start diverging from the EU framework. This is even one of the main purposes of Brexit," he said.

He said, “The size of the UK financial market and the very close links between the EU and UK financial systems mean we need to be extra careful. We need to capture all potential risks: for financial stability, market integrity, investor and consumer protection, and the level playing field.”

EU and UK negotiators will continue discussion until the end of the week before another round of talks is held in London next week.

In London, it emerged that UK companies exporting into the EU will have to wait for permission from tax authorities before moving their goods.

Lorries will only be able to move loads into the EU if they have a valid reference from the so-called Goods Vehicle Movement Service, a new and untested IT platform, under plans being drawn up by the government.

“British exporters will be the biggest losers from this,” said Naomi Smith, chief executive officer of Best for Britain, a pro-EU campaigning group. “Additional bureaucracy threatens to clog up our trade arteries.”