LONDON (Reuters) - Britain faces a permanent debate over whether to copy or diverge from European Union financial rules after Brexit, a top UK lawmaker said on Wednesday in comments likely to prolong uncertainty for banks.
Nicky Morgan, chair of parliament’s powerful Treasury Select Committee, said Britain’s financial sector and its regulators face several long-term questions as the country readies to leave the EU next March.
So far the bloc has said it won’t give Britain’s banks and insurers special treatment, meaning they must use the EU’s existing system of market access for foreign companies, known as equivalence.
This would in practice force Britain to continually align its regulation with EU rules to ensure continued access, but the Bank of England has said Britain must not be a “rule taker”.
Morgan said there are questions about how should Britain use its autonomy over financial rulemaking after Brexit, a nod to pro-Brexit supporters who say the United Kingdom could loosen up some rules to keep the City globally competitive.
“There will be in effect a permanent debate on whether to align or diverge from the EU framework,” Morgan told an International Swaps and Derivatives Association (ISDA) conference.
“It’s important that this debate is based on sound principles.”
Britain has called for an “enhanced” version of the EU’s equivalence regime to cover more financial activities, but Brussels is lukewarm.
Tilman Lueder, head of securities markets at the European Commission, the body that decides if foreign financial firms can access the EU market, said the equivalence system was already working well.
“If anyone thinks Europe is closed to the world and is a fortress, the evidence does not bear that out,” Lueder told the conference, declining to say if Brussels would grant “equivalence” to Britain in financial services after Brexit.
“Anything other than a quick equivalence determination would be a massive setback for cross-border harmonisation, not just for the UK but for other countries trying to access the EU,” ISDA Chief Executive Scott O’Malia said.
With little clarity on future UK-EU trade relations, banks, insurers and asset managers are opening hubs in the bloc to ensure continuity of service with customers there after Brexit, though the number of job moves so far is low.
Reporting by Huw Jones