Last month, EU negotiators have been accused of politicising the UK’s financial services sector in Brexit trade talks, after suggestions Brussels could shut the City of London out of its markets if the UK does not budge on other areas during negotiations. A senior EU official told City A.M. that the bloc would only grant the British financial services sector access to its lucrative EU markets if it was “within our own interests” and if the UK shifted its position on key areas in trade talks, such as the EU’s fishing access to British waters. The EU source said: “Just because we have made the [equivalency] assessment in June, does not mean we will make the decision in June.
“The UK is requesting access to a massive market – we’ll act within our own interests and we will only sign up to a deal that is in our own interests.”
A spokesperson for the UK negotiating team hit back at the EU’s tactics by saying the “politicisation of financial services” was “in no one’s interests and the EU knows that”.
The last round of negotiations via conference call ended last week, with both sides complaining of deadlock in key areas such as EU access to UK fishing grounds, governance, and the so-called level playing on common standards and competition.
With less than four months to strike an agreement, unearthed reports reveal how Brussels has been trying to get hold of the City of London for more than a decade.
Michel Barnier’s Brexit trapdoor opened as Brussels’ City of London plan exposed
City of London
According to a 2011 report by The Daily Express, the bloc set up three watchdogs in order to oversee the European economy in the hope of preventing another financial crisis nine years ago.
However, many critics feared the new institutions, which officially came into being on January 1, 2011, would increase EU meddling in British business and swamp the City of London with a tide of regulation.
The watchdogs reportedly cost EU taxpayers £35million in 2011, rising to around £58million in 2014.
The bodies employed 150 staff split between headquarters in London, Paris and Frankfurt, with the total payroll rising to around 300 three years later.
Former Conservative MP Douglas Carswell said at the time: “We promised to scrap quangos, but while we remain a member of the EU, quangos are foisted upon us and there is nothing we can do.”
An overhaul of the EU financial regulation system was launched in 2010, following the debt crises in Greece, Ireland and other eurozone countries.
Under the framework, a European Systemic Risk Council was set up to monitor threats to financial stability and three watchdogs – covering the banking, insurance and securities markets – were also established.
Former Chancellor George Osborne agreed to the move at a summit in December, 2010, after winning assurances that the new bodies would not have direct supervisory powers.
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Former Ukip MP Douglas Carswell
Former Chancellor George Osborne
Despite the concessions, critics feared yet another expansion of regulatory control by the EU.
When the watchdogs were announced in 2010, now EU’s chief Brexit negotiator Michel Barnier, who at the time was internal market commissioner, hailed the move as a “political consensus on the creation of a European financial supervisory framework”.
He said: “It’s is a crucial stage in our effort to better protect our economy and our citizens in the future.”
However, according to several reports from the time, Mr Barnier’s real plan only had one goal: trying to sap London’s strength as Europe’s financial centre.
According to a 2010 report by the Daily Telegraph, the former French minister was more likely to side with then President Nicolas Sarkozy than he was with the leaders of London’s under-pressure finance sector.
As the publication put it, “the Frenchman was seen as a threat”.
The UK’s fears appear to have been justified, too.
In a 2011 Financial Times report, EU correspondent Alex Barker noted how the myriad of Brussels proposals had left Britain’s financial world reeling and ministers saw such measures hurting the sector or crimping UK regulatory powers.
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EU’s chief Brexit negotiator Michel Barnier
That nervousness reportedly burst into the open, with David Cameron moaning about the City being “constantly under attack”.
For the former Prime Minister – and figures from the UK’s financial industry – the problem was not one single issue but rather a worrying trend.
Anthony Belchambers, chief executive of the London-based Futures and Options Association told the publication at the time: “Red tape, ill-informed tax initiatives, protectionist policies and high ‘pass on’ costs will damage the international reach of the City.”
In his FT report, Mr Barker also pointed out that the underlying alarm in London was a more visceral fear; that Mr Barnier and his backers had been using the regulatory system to sap London’s strength as Europe’s financial centre.
The EU correspondent wrote: “Already, rivals such as Paris and Frankfurt are on the march.
“UK Treasury officials are suddenly fielding calls from companies offered tax breaks to move to the French capital.
“Regulators are weighing whether to permit NYSE Euronext to merge with Deutsche Börse, giving the world’s largest exchange a Dutch postal address and a formidable reach across Europe.
“France and Germany ‘see the City as ripe for plundering’, in the words of one European official.’
“‘The British are only just waking up to it,’ the official adds.
“‘And in some cases they’re too late.’
“Furthermore, analysts warn, the drive for tighter eurozone economic governance could leave Britain on the sidelines of an EU realignment, with lasting consequences for the City.”
Mr Barnier always dismissed complaints against him as “nonsense”.