The UK is ready to set out its vision for how it wants financial services to operate after Brexit and favours an ambitious “mutual recognition” of regulations to preserve the City of London’s access to the EU.
Under Britain’s proposal, the UK and the EU would recognise each other’s regulatory and supervisory regimes and would have aligned rules at the point of Brexit, with a mechanism that would monitor any divergence.
Three senior figures briefed on Brexit discussions in the cabinet said that the government will back the proposal, which is also favoured by Mark Carney, the Bank of England governor.
One said: “They are going down the route of mutual recognition.” Another person close to the discussions called the preferred option a “dynamic reciprocal mutual recognition model”. The Treasury declined to comment.
Philip Hammond, chancellor, is expected to endorse the idea in a speech that could come as early as next week. His allies cautioned, however, that a final decision on a preferred model has not yet been taken.
Under the British plan, the UK would commit to keeping its financial regulations in line with EU rules, and would cede authority to a dispute resolution mechanism to calibrate the City’s market access or impose other conditions — for example higher capital requirements — if one side was seen to be breaking the spirit of the agreement.
The idea is likely to be welcomed by Britain’s financial services firms and is favoured by cabinet ministers because it would allow the UK to set its own rules to meet commonly agreed objectives such as consumer protection and financial stability.
Miles Celic, chief executive of TheCityUK lobbying group, said: “This has been our plan A, plan B and plan C for about 12 months or more.”
The proposal was developed by the International Regulatory Strategy Group, an industry body that consulted widely across the EU, as an alternative to the EU’s “equivalence” regime that applies to third countries.
But the idea is unlikely to win favour in Brussels and Michel Barnier, the EU’s chief Brexit negotiator, has repeatedly said that the UK will not be able to negotiate special access arrangements to the single market for financial services.
Theresa May, who will discuss Brexit with German chancellor Angela Merkel in Berlin on Friday, has said she wants to include financial services in a free trade deal. One ally of Mrs May said: “Obviously our future relationship is a matter for negotiation.”