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Government warns that punitive approach to City of London during Brexit will hurt EU

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London
The
City of London.


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  • The EU’s stance on the City of London appears to be
    softening.
  • The UK government warned EU Brexit negotiators that an
    overly punitive approach to the City of London will also hurt
    the rest of Europe.
  • UK officials told Brussels that “thousands” of European
    investment funds will be under threat if the EU insists on a
    hardline approach to the City.
  • Fund run by UK firms are currently sold to clients in
    EU countries and EU firms sell their funds to UK customers
    under financial passporting rules.

LONDON — British Brexit negotiators have issued a stern warning
to their EU counterparts over the damage that could be done if
the EU takes an overly punitive approach to the City of London.


According to a report from The Times on Tuesday
, UK officials
told Brussels that “thousands” of European investment funds will
be under threat if the EU insists on a hardline approach to the
City, something favoured by the EU’s French contingent, which
sees Brexit as a way to strengthen Paris as a financial centre.

UK firms currently sell thousands of investment funds to clients
in EU countries, while EU firms sell their funds to UK customers
under financial passporting rules. Luxembourg is a particular hub
for such business.

Under the EU’s current stance, UK companies would lose the
ability to sell funds into the EU. This has led British
negotiators to argue that the reverse would also be true: EU
firms would be unable to sell into the UK. The Times reports that
the strategy was “designed to highlight the damage that could be
caused if Britain fails to get a special deal for the City.”

“This was not intended as a threat. Rather, we wanted to set out
what both sides could lose if we don’t get a good deal, and it
was received in that spirit,” a source within the government told
the newspaper.

The report comes after the EU’s hardline chief negotiator Michel
Barnier appeared to soften his stance on the future relationship
last week. Barnier had previously been in opposition to Prime
Minister Theresa May’s “advanced equivalence” plan, as he
believed it threatened the bloc’s “decision-making autonomy.”


Under the government’s proposed new relationship Britain would
sign up to a system of so-called “equivalence.”
The
government said it will seek to improve on existing requirements
for equivalence of rules between the EU and outside countries.
Barnier and other officials believed that this would mean the UK
would be able to control how much access it had to EU financial
markets

However, after British officials clarified that this was not part
of the plan and that power to grant access to those markets would
remain in the hands of Brussels, Barnier is believed to have
climbed down from that position,
according to a Financial Times report.

“Last week we held positive discussions with the European
Commission on our proposal for a pragmatic new arrangement for
financial services after we leave the EU,” a Treasury spokesman
cited by the Times said, adding that negotiators found “common
ground in recognising both the EU’s and Britain’s desire to have
control over their own decision-making.

They also recognised “the need for bilateral dialogue and
cooperation to reflect the deeply integrated nature of UK and EU
financial markets,” the spokesman added.

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