By Huw Jones
LONDON (Reuters) – Britain’s massive financial services sector won’t get special access to the European Union after Brexit, City of London financial district chief Catherine McGuinness said on Wednesday.
Britain has called for an “enhanced” version of the bloc’s equivalence system of market access for banks, insurers and brokers, that could distinguish it from other non members of the bloc.
“At the moment it looks as if we are going to have to start with third country equivalence and build on it,” McGuinness told Reuters.
The existing system is seen as unpredictable, patchy and prone to politicization and the EU is tightening access conditions in key activities for London like clearing euro contracts. The EU is Britain’s biggest financial services export market, worth 25.9 billion pounds in 2017.
McGuinness said uncertainty over trading relations after Brexit was now the “new normal”.
Nearly 300 financial firms in London have shifted about a trillion pounds in assets to new hubs in the EU to mitigate the uncertainty and avoid disruption to customer ties.
The big financial firms are ready for Brexit and assets won’t return even if Brexit was canceled, she said.
The Bank of England expects 4,000 jobs in banking and insurance will have moved from London to the EU by Brexit Day.
She was “comforted” there has been no huge outflow of jobs so far, but expected more jobs to be lost.
London will remain a major financial center that builds on strengths like innovation and technology, McGuinness said, but in the short term it faced an EU keen to bolster its own financial sector to rely less on London.
Trading in European government bonds and repurchase agreements has already left London for Amsterdam, and the bloc’s regulators are sending signals they want share trading to follow, McGuinness said.
“There are clearly pressures from the EU to try to onshore activities. If they try to onshore too much, fragmentation is in nobody’s interest,” she said.
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There was “deep frustration and resignation” in the financial sector over how a “paralysed” parliament was handling Britain’s departure from the EU, McGuinness said.
Continued extensions to Brexit must not end up “kicking the can” down the road.
“Once we get through this phase, this is only the end of the beginning. Whether we crash out or get transition, we have got to work out the next phase of future relations,” she said.
Brexit was extended from March 29 to this Friday, and Prime Minister Theresa May is asking EU leaders on Wednesday for a further delay to the end of June, though a much longer postponement may be granted.
“To keep extending without getting anywhere would be very damaging,” McGuinness said.
“There needs to be some resolution and it’s not obvious what the resolution should be as we see chaos in parliament.”
Financial and other services make up 80 percent of the UK economy but barely feature in Brexit compromises that focus on a customs deal with Brussels, she said.
“People should look carefully at the implications of whatever compromise they manage to reach. We would be very concerned if they tied our hands in terms of our ability to manage the services sector.”