Richard North, 01/07/2020  

Well, the deed is done – or, to be more accurate, not done. While the puer aeternus Johnson was out and about dressing up as Bob the Builder, burbling about spending money he hasn't got on things he has already promised to do, the unsmiling men in grey suits were sitting on their hands doing precisely nothing.

The "nothing" they were doing was not applying for a transition extension with the EU, on the instructions of their Peter Pan prime minister. He has made very clear his desire to pull the plug on 31 December, whether we have a trade deal or not.

As the clock counted down – and very unlikely by coincidence - the usually genial Michel Barnier was giving a speech to the Eurofi General Assembly, delivered online rather than in person, but addressed to Brits and others of a financial bent who were part of this "European think-tank dedicated to financial services".

What was so particularly noticeable was the tone – not that his teeth were bared and he'd started snarling, or anything like that – but there was a distinctly frosty, uncompromising edge to what M. Barnier had to say. He was very clearly signalling "no more Mr Nice Person".

Referring to a recent agreement with the UK to intensify negotiations, he gave a perfunctory obeisance to the mantra of giving the negotiations "every chance of succeeding", adding without a scintilla of conviction that he continued to believe "an agreement is possible".

Not to be too unkind, an agreement is actually possible. The two sides could jointly schedule a toilet break and that could be categorised as an agreement, even if it is not quite of the soaring breadth that was first envisaged in the heady aftermath of the Brexit referendum. Baby steps, maybe, but it is an agreement.

On the face of it though, given the current conditions, that would probably qualify as a major breakthrough, especially as that not-so-nice M. Barnier spent most of his speech telling the un-extended Brits what they weren't going to get.

Eurofi members and supporters, it would appear, "would like clarity on the Brexit negotiations and the ongoing process for assessment of equivalences" – the latter being the acceptance by the EU that certain UK financial rules are equivalent to their own.

Not being one to keep people in suspense, M. Barnier rose to the challenge of briefly telling his web audience where the EU stood on these two points. "As you know", he said, "the key instrument to regulate interactions with the UK financial system will be our equivalence regimes".

Then he started to use big words, which will not at all suit our puer aeternus. But Barnier went ahead and did it anyway. The equivalence regimes are "autonomous, unilateral tools" and, as such, "they are not part of our current negotiations". There you go – that's "Not a Communist" Johnson told.

Now, just to clarify matters, which Barnier also promised, the EU are proposing to include, in their future agreement with the UK, a chapter on financial services, in line with what they have in other Free Trade Agreements. Such proposals, he says, "would give UK operators legal certainty that they would not face discrimination when establishing themselves in the EU".

But there seems to be a snag: the UK "is looking to go much further". And this is where Mr Not-Nice-Person comes out to play. "I will be blunt", he says. "Its proposals are unacceptable", not least because "they would severely limit the EU's regulatory and decision-taking autonomy".

The UK, essentially, is trying to pull a fast one. It is seeking to create a legally enforceable regulatory cooperation framework on financial services in the agreement. And, in attempting to frame the EU’s process for withdrawing equivalence decisions, it is trying to turn our unilateral decisions into co-managed ones.

If Churchill was commenting on this, he might be saying, "up with this we will not put". But given that this is the pragmatic Barnier, he simply says: "There is no way Member States or the European Parliament would accept this". Even Mr "Not a Communist" should be able to understand that.

The thing is though, it doesn't stop there. The UK is trying to keep as many Single Market benefits as it can – more cakeism. They just don't learn. It would, therefore, "like to make it easy to continue to run EU businesses from London, with minimal operations and staff on the continent".

Thus, it wants almost free rein for service suppliers to fly in and out for short-term stays (Mode 4). It is also proposing provisions on the performance of back-office functions "that could create a significant risk of circumvention of financial services regulation".

It wants to assimilate British audit firms into European ones, in order to meet ownership and control requirements, and it wants to ban residence requirements for senior managers and boards of directors, to ensure that all essential functions remain in London.

These ideas supposedly come from intelligent people who are in touch with the world of business and get the "big bucks" for knowing how things work. Yet, if they have posh suits, big titles and bigger pensions, they seem to have the intellectual acumen of children.

Barnier makes it clear. He should not have to. If these people had the brains they were born with, they wouldn't need telling. But there you go: "The UK chose to no longer be a Member State", Barnier says. "It chose to leave the EU Single Market and stop applying our common ecosystem of rules, supervision and enforcement mechanisms". And, in particular, "it refuses to recognise any role for the European Court of Justice".

It's not as if Barnier hasn't said this before – many times. But the shit-for-brains with their posh suits and big pensions still haven't taken it on board. So, Mr Not-So-Nice-Person spells it out, again. "Choices have consequences", he says. Amazingly, "The UK cannot keep the benefits of the Single Market without the obligations". Duh!

In the EU’s view, our future cooperation should be voluntary and based on trust. "We would like", says Barnier, "to set up a voluntary framework for dialogue among regulators and supervisors that would allow for intensive exchanges on regulatory and prudential issues".

As for the equivalence assessment process, the Political Declaration committed all parties to "best endeavours" to finalise the respective assessments by the end of June. Thus, the European Commission has therefore sent questionnaires to the UK, covering 28 areas where equivalence assessments are possible. So far, the UK has only answered four of these questionnaires.

One can only conclude of David Frost's team that these people are not right in the head. "These assessments are particularly challenging", says Barnier. Well who'd have thunk that? You mean they haven't actually realised that they have to be forward-looking, given the UK’s publicly stated intention to diverge from EU rules after 1 January 2021?

Barnier may be wasting his time given performance to date. But he's almost pleading for the British team to have "no illusions". The UK will progressively start diverging from the EU framework, he says. This is even one of the main purposes of Brexit.

Secondly, the size of the UK financial market and the very close links between the EU and UK financial systems mean we need to be extra careful, to capture all potential risks: for financial stability, market integrity, investor and consumer protection, and the level playing field. Many believe, Barnier adds, that "responsible politicians" on both side of the Channel should make things happen – assuming there are any on this side of the water.

But things have to change, we are warned. The UK and the EU will be two separate markets, two jurisdictions. And the EU must [i.e., will] ensure that important risks to its financial stability are managed within the framework of our Single Market ecosystem of legislation, supervision and jurisdiction.

And the UK will, from the choice of its politicians, be detached from all that. Thus, the EU will only grant equivalences in those areas where it is clearly in the interest of the EU; of our financial stability; our investors and our consumers.

In practice, we now know that the transition period will not be extended. The EU was open to an extension. But the UK refused. That is the UK’s choice. As a result, from 1 January 2021, UK firms will lose the benefit of the financial services passports. This, says Barnier, "should not come as a surprise to you. We have been warning about this for the past three years".

Furthermore, he says, in some areas – such as insurance, commercial bank lending or deposit-taking – EU law does not provide for the possibility to award equivalences that would grant market access to third-country firms.

In these areas, if British firms want to provide services in the EU, they must ask for an authorisation in the EU. Or comply with all the relevant national regimes of those EU Member States where they want to continue to be active. And nothing in the agreement that we are negotiating will change this!

With an air of finality, Barnier says: "These are automatic, mechanical consequences of Brexit". He could have said, "tough shit", but he's far too polite. Instead, he said, "I can only urge you to speed up preparations and take all necessary precautionary measures!"

Meanwhile, he says, "We will remain calm, pragmatic and determined until the very end". I think that means that they are not going to panic – because we need to – even (or especially) Bob the Builder.

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