Britain’s government is ready to push for the kind of Brexit regulation plan that the City of London has long favored but which has already run into opposition in Brussels, the Financial Times reported on Friday.
Finance minister Philip Hammond could make a speech as soon as next week to back a mutual recognition system to regulate financial services after Brexit in a bid to keep the City of London’s access to the bloc, the FT said.
Under the proposal, Britain and the European Union would recognize each other’s regulatory and supervisory regimes, an option long favored by the financial services industry.
A spokeswoman for the finance ministry declined to comment on the report which she said was speculation.
A final decision on the best model to pursue has not yet been taken, the FT quoted allies of Hammond as saying.
Bank of England Governor Mark Carney has previously said Britain and the EU should adopt a system of mutual recognition or run the risk of a damaging hit to financial services across Europe.
A dispute resolution mechanism would be part of the plan, the FT said.
Such a proposal is likely to be opposed by the European Commission which has said Britain cannot pick and choose which parts of the EU’s single market it can retain.
EU officials told British financiers recently that they won’t agree to a deal drawn up by the City that would allow firms to operate in each others’ markets without barriers because Britain has said it will leave the single market.
The City’s 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.
London’s bankers may have to rely instead on what is known as equivalence. The legal mechanism allows countries from outside the EU to access the single market in limited circumstances. Access is patchy and can be revoked at short notice.
Britain’s vast financial services sector looks set to be one of the most divisive areas in the Brexit negotiations. Britain wants a generous deal while the EU insists that Britain’s red lines — such as ending the free movement of workers from the EU — make that impossible.
Britain is home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($7.5 trillion), or 37 percent, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris.