The U.K. should remain close to EU financial regulations post-Brexit or increase the risk of another financial crisis, said EU’s Chief Brexit Negotiator Michel Barnier.
Speaking to a finance industry audience in Sofia, Barnier warned the U.K. to “not have a short memory” and stick close to already agreed post-crisis regulation to avoid the taxpayer-funded bailout of banks which led to economic, social and political consequences.
“We all saw during the crisis that the risks of financial instability were ultimately borne by taxpayers – not only in the U.K.,” Barnier told the Eurofi High-Level Seminar.
“And since the financial crisis evolved into an economic and social crisis, the consequences were indeed borne by society, from the young unemployed to the owners of small businesses. And I am not even mentioning the political consequences: nobody should underestimate these,” he added. “In order to limit the risks in the future, we collectively developed, together with the G20, more effective financial regulation and supervision. And we were very happy to do this hand-in-hand with the U.K.”
“Both market participants and public authorities should hope for the best, but prepare for the worst” — Michel Barnier
The U.K. has called for a mechanism which would allow it access to EU markets based maintaining regulations that yield similar outcomes, allowing London to have a limited divergence from EU regulations. But in a thinly veiled attack on the U.K.’s dislike for the bloc’s bonus cap rules, which could be one of the standards Britain will consider changing post-Brexit, Barnier said: “remuneration of bankers set the wrong incentives and allowed excessive risk-taking.”
Barnier has ruled out access to the EU via a free trade agreement for U.K.-based financial firms, saying instead that access to the EU market for U.K.-based firms will have to be via the equivalence framework.
U.K. politicians, as well as the financial lobby, have rejected equivalence, which they say is a patchy regime susceptible to politics. Chancellor of the Exchequer Philip Hammond has slammed the regime as “wholly inadequate” for the U.K.
Barnier said in his Sofia speech that “there is no intention of discriminating against the U.K. post-Brexit,” noting that Brussels is in the process of improving the equivalence process. But, he warned, “the equivalence regime will operate in a more effective manner if the U.K. decides not to diverge from our financial regulation.”
The U.K. has chosen to give up the financial passport that currently allows access to the EU market as a result of leaving the single market, and therefore “must also acknowledge that it cannot have the benefits of such passports,” Barnier said. “Market participants should realize that this will not be business as usual.”
Barnier also reiterated the EU line that full certainty about a transition period will only come about once everything has been agreed. In the meantime, he said everyone should prepare for a no deal scenario, just in case. “Both market participants and public authorities should hope for the best, but prepare for the worst,” he said.