The European Union official responsible for financial services regulation has warned of "clear limits" to the relationship between the UK and the bloc once Brexit takes place.
Speaking in London today (24 April), Valdis Dombrovskis, vice-president of the European Commission, said the UK would have to rely on the system of "equivalence" where the European Union removes some regulatory barriers if it judges that a jurisdiction is well-regulated.
This is the same treatment given to the US and Singapore but this access is reliant on the EU continuing to approve of the UK's regulatory regime and can be withdrawn at any point - meaning for access to the European market to be maintained, Britain would have to mirror its rules.
Mr Dombrovskis said: "Equivalence is only possible if there is a close convergence of rules and supervision. If the EU and a third country should happen to go different ways, the conditions for equivalence would fall. This means that equivalence may be changed or – as a last resort - withdrawn.
"To make this less likely to occur, supervisors need to work together. The closer our relationship with third countries, the more intensive and regular are our dialogues with them.
"Equivalence is not perfect, neither for firms nor for supervisors. But one should not make the perfect be the enemy of good. Equivalence has proven to be a pragmatic solution that works in many different circumstances, and it can work for the UK after Brexit as well."
Mr Dombrovskis added that any trade deal the UK reached with the European Union was unlikely to contain any reference to financial services as governments do not typically give up their powers to regulate this industry so they remain able to maintain financial stability in their jurisdiction.
He said: "There are some clear limits to equivalence. Equivalence decisions are and will remain unilateral and discretionary EU acts. Even in trade agreements, governments do not give up power over their core responsibility to protect financial stability. This is why there are prudential carve-outs in such deals."
Last month the EU and the UK agreed on an implementation period following Brexit.
This will mean that from 29 March 2019 until the end of December 2020 European law - including financial services rules - will continue to apply in the UK.
The FCA has previously ruled out a "bonfire of regulations" after Brexit, saying many standards were now set globally.
damian.fantato@ft.com
