'Don't kid yourselves': EU instantly shoots down UK government plea to protect City access after Brexit

Dismissal comes hours after Chancellor asked for a 'durable' system, in blow to Boris Johnson

The EU's chief negotiator has immediately rejected a plea by Sajid Javid to protect the City's access to EU financial markets after Brexit.

The Chancellor had called for a “reliable equivalence process” for financial services rules on which “a durable relationship” can be built with the EU.

But just hours after the proposal was published Brussels' chief negotiator Michel Barnier dealt a blow to Boris Johnson's negotiating strategy.

"I would like to take this opportunity to make it clear to certain people in the United Kingdom bearing authority that they should not kid themselves about this - there will not be general, open-ended, ongoing equivalence in financial services," he said.

Mr Barnier added that the EU would "retain a free hand to take our own decisions" and would simply not negotiate with the UK on this point.

The Chancellor had said the Government wanted to conclude a full range of equivalence assessments by June 2020 - allowing the UK and EU to respect each other's rules.

But he also said the UK would keep the freedom to diverge and regulate in a different way from the rules set in Brussels.

"Each side will only grant equivalence if it believes the other's regulations are compatible," he wrote in the City AM newspaper.

"But compatible does not mean identical, and both the UK and the EU have at different times recognised the importance of focusing on regulatory outcomes.

"We will no longer be rule-takers, but we remain committed to the highest international standards of financial regulation and to shaping global rule-making."

The question at stake is whether EU authorities would call the shots on whether UK firms were complying with EU regulations to trade on the continent.

I would like to take this opportunity to make it clear to certain people in the United Kingdom bearing authority that they should not kid themselves

Michel Barnier

If that were the case, the UK would be a less attractive location to base a financial institution in because it could be frozen out of EU markets at the whim of European regulators.

Under a more "durable" agreement as suggested by Mr Javid, market access would be backed at treaty level and it would be harder to freeze out UK firms. If this were the case, banks and other financial institutions could base themselves in the UK knowing they might not be frozen out by EU regulators one day to the next.

As a result of Britain's departure from the EU, City firms will lose their automatic "passporting" rights to keep doing business on the continent.

Mr Barnier added that "the opening of our markets, access to data, and equivalencies for financial services will be proportional to the commitments made to meet a true level playingfield" in the UK staying tied to EU regulations.

Some member states like France see Brexit as an opportunity to expand their financial services sectors at the expense of the UK, which has historically dominated.