The European Unions chief negotiator has clashed with the head of Britains financial regulator over whether financial firms will be able to sell their products into Europe tariff-free when the U.K. leaves the trading bloc in 2019.
Speaking at the European Economic and Social Committee in Brussels on Thursday , EU lead negotiator Michel Barnier warned that sector-specific access to the single market for financial services firms would not be possible after the U.K. quits the trading bloc at the end of March 2019.
There can be no sector by sector participation in the single market: you cannot leave the single market and then opt-in to those sectors you like most say, the automobile industry or financial services, said Barnier. You cannot be half-in and half-out of the single market.
As Barnier was speaking, however, Andrew Bailey, the chief executive of the U.K.s Financial Conduct Authority, made a contradictory speech in a separate address to delegates at the Reuters Newsmaker conference in London.
When I hear people say that firms need to re-locate in order to continue to benefit from access to EU financial markets, I start to seriously wonder, said Bailey. Does Brexit have to mean abandoning the benefits of free trade and open markets in financial services? It should not. Does it require membership of the single market to get the benefits of free trade with the EU? No.
Bailey added that recent media reports have suggested that the U.K.s departure from the EU will lead to restrictions on trade, but he does not believe that this would automatically be the case.
Neil Williams, group chief economist at asset manager Hermes Investment, said in a statement that if the U.K. loses the ability to provide cross-border financial services, the industry will be faced with significant additional costs. He said that these could include establishing local branches in other European centers, maintaining local capital, and the compliance costs of seeking approval from multiple local regulators.
The conflicting views from two senior regulatory figures on the European stage show how far from common ground both countries now stand. Findings from a report released at the beginning of the week from asset management consultancy MJ Hudson found that 48 percent of investors and 46 percent of fund managers say the ability to provide financial services from the U.K. into EU countries was the single most important factor to the UKs standing as Europes leading fund management center.
Most investors are still hopeful of a successful compromise, however. According to the report, 56 percent of U.K.-based fund investors think the U.K. government will secure an acceptable deal for the asset management industry in the Brexit negotiations, while 16 percent of European fund investors outside of the U.K. agreed with them. The report surveyed 300 investors during March and April 2017.
According to the MJ Hudson report, the loss of access to the European single market is among the top three biggest fears for respondents to the survey, along with the loss of staff and the impact on the British economy.