And Barnabas Reynolds, a partner at Shearman & Sterling LLP and Global Head of the Financial Services Industry Group, suggested Mr Barnier was motivated, at least in part, by a desire to “punish” the UK. Speaking on Tuesday at a conference organised by the Eurofi think thank, Mr Barnier, the EU’s negotiator in ongoing talks aimed at striking a wide-ranging trade agreement with the UK, rejected British proposals to give the City of London access to the European Union, claiming they sought to seek to maintain the benefits of the single market without the obligations. The EU argues the UK could gain a competitive advantage by easing financial rules, and Mr Barnier said: “I will be blunt: its proposals are unacceptable.
“There is no way member states or the European Parliament would accept this.”
Rejecting the UK’s plans for a system of Enhanced Equivalence which would permit each party to govern under its own laws, Mr Barnier is instead pushing an alternative EU plan which would only allow UK firms to sell into the EU under arrangements based on the existing EU equivalence regimes.
However, Barnabas Reynolds, a partner at Shearman & Sterling LLP and Global Head of the Financial Services Industry Group, hit back in an article published by the Politeia think tank today headlined “Non, non, non, M. Barnier! The EU poses the risk to the financial system, not the UK.”
The EU’s tactics amounted to an attempt to manipulate the situation for its own ends, Mr Reynolds said.
Michel Barnier and Boris Johnson
He added: “M Barnier appears true to form and the reality is that the EU wants leverage to extract concessions to hold the UK captive in the future by deciding the shape of the UK’s rulebook.
“But conceding to Barnier’s demand would condemn British firms to uncertainty unless future UK governments have exceptional political will, because the EU’s version of equivalence could be withdrawn at a month’s notice.”
As such, the unreliability of the EU’s proposals could be weaponised against the UK, he warned.
Mr Reynolds added: “The UK team must, therefore, hold its nerve.
The City of London is one of the world’s most important financial hubs
“Barnier’s sabre rattling and allegations of potential risk are groundless.
“The UK must stand up to the demands and say no.”
Secondly however, he suggested it was not the UK’s proposals which posed a risk to the EU, but rather the EU’s legal arrangements which posed a danger to the world’s “financial ecosystem”.
He explained: “Only the UK can guard against the resulting risk of contagion – and potentially massive investor losses – for the world’s financial markets, given that we are host to those markets and need not only to protect the UK’s financial system but the world system as a whole.
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For Barnier, the difficulty is that under Enhanced Equivalence, the UK would not be ‘punished’ or appear to suffer
“Enhanced Equivalence, if properly adopted, is sensible and necessary to protect the half-built eurozone.
“But for Barnier, the difficulty is that under Enhanced Equivalence, the UK would not be ‘punished’ or appear to suffer.
“UK-based financial firms would continue to benefit from many of the ‘passporting’ arrangements under the single market, but based on the UK’s own rules.
“That does not accord with the wish of some in the EU to demonstrate damage to the UK from Brexit.”
The UK’s responsibilities extended far beyond its shores, or even the boundaries of the bloc, Mr Reynolds stressed.
He said: “The UK has a duty to the global markets served by the City and the UK’s financial sector to protect them from exposure to EU risk, which can only be done by trading under UK law.
“For the evidence is that the unresolved flaws in the eurozone’s legal architecture make such an arrangement necessary to enable the UK to continue protecting itself and the rest of the world from the extraordinary risks created by the eurozone’s legal structure, embedded in EU law itself.”
The eurozone, he said, was “the weakest spot in the EU’s position”.
He added: “The same eurozone structures that dump financial risk on the rest of the world also create unfair trade dumping and subsidisation, which the UK has suffered the effects of whilst within the EU, but which after Brexit it also needs to protect itself from, using the legitimate self-help remedies provided for under the WTO system.
“What we saw at Eurofi on Tuesday was another attempt by the EU to play politics rather than negotiate a trade deal.
“The problem with M Barnier’s speech is not the posturing on the EU’s preferred deal, or how the UK hosting of financial firms might damage the EU economy.
“At issue is its implicit denial of the improper arrangements underpinning the eurozone, and of the unfair advantages the EU has accrued through the eurozone’s complex mechanics which already fall foul of international dumping and subsidy rules and disadvantage the UK, the US and the rest of the world.”