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LONDON: European Commission officials have rejected the City of London’s proposal to strike a post-Brexit free trade deal on financial services, a major blow to Britain’s hopes of keeping full access to EU markets for one of the world’s top two financial centers.
Officials from the European Union’s executive told British financiers in meetings in recent weeks that they won’t agree to a deal that would allow finance companies to operate in each others’ markets without barriers because Britain has said it will leave the single market, according to two people who attended the meetings.
The plan proposed that Britain and the EU would allow cross border trade in financial services on the condition that each side preserve regulatory standards in line with the best international standards. This model would be maintained by close co-operation between regulators and financial policymakers.
Executives have been working on the plan for the past year, writing detailed papers setting out how a pact could be structured and policed, and it has been endorsed by Britain’s Brexit minister David Davis.
But EU officials are dismissive of any trade models that would see Britain retain similar levels of market access while leaving the single market regime.
“They have made it very clear to us that this is unacceptable to them,” said one senior British finance executive present at one of the meetings. “This was our best and frankly only proposal. We don’t have a plan B.”
Britain’s vast financial services looks set to be one of the most divisive areas in the Brexit negotiations, with Britain demanding a generous deal while the EU refuses to shift from its insistence that Britain’s red lines — such as ending the free movement of workers from the EU — make that impossible.
It represents a second setback for the City of London, which had initially pinned hopes on Britain maintaining “passporting” in financial services after Brexit.
The Commission and the City of London Corporation, which runs London’s historic financial district and it is backing the proposed deal, did not immediately respond to requests for comment.