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Britain’s government, in a plan unveiled on Thursday, envisions a new, special arrangement for the country’s large financial sector after Britain leaves the European Union next year. It remains to be seen, though, if the bloc’s officials will accept the proposal.
In the new plan, Britain’s prime minister, Theresa May, abandoned previous hopes of a so-called “mutual recognition” of financial regulations between the United Kingdom and Europe. That was supposed to have allowed banks in London to continue operating with Europe in much the same way as they do now.
The government’s argument for that approach: The financial sectors of Britain and the bloc are so entwined that it would be financially damaging to both sides if regulatory barriers hindered their operations. But the European Union has argued that Britain should not get special treatment if it refuses to play by the rules of its single market.
Instead, it has suggested that Britain’s banks be treated under “equivalence arrangements,” which provide limited access to the union’s financial markets for what are known as third country partners. That includes the United States.
The new Brexit proposal instead seeks a middle ground, so that British banks are allowed to operate under a kind of expanded equivalence arrangement. That, suggests Mrs. May, would provide Britain’s banks with greater access to European Union markets, as well as regulatory and supervisory cooperation with the bloc.
Whether the European Union will agree to such a proposal remains to be seen. Michel Barnier, the bloc’s chief Brexit negotiator, has suggested that regular equivalence arrangements should be good enough for Britain’s banks.
“Why would the equivalence system, which works well for the U.S. industry, not work for the City?” he asked in April.
He may have a point. Britain’s banks may find that their operations aren’t affected all that much by equivalence. But for Mrs. May, a privileged relationship between the financial sectors in Britain and the European Union appears to be something that she is unwilling to yield on. The negotiations will test her resolve.