Brexit: EEA membership ‘will not work’ for UK financial services

UK membership of the European Economic Area after Brexit will not work for London and Britain’s financial services industry, a former European commissioner for the sector has argued.

Jonathan Hill, the UK's European commissioner for financial stability, financial services and capital markets union at the time of the UK's referendum on EU membership, resigned within days of the result.

In a letter to the Financial Times, published on Monday, Mr Hill dismissed suggestions that a Norway-plus model could work for the UK after it leaves the bloc in March.

Norway is a member of the European Economic Area (EEA) and the European Free Trade Association (Efta), which gives it full access to the EU single market, guaranteeing limited restrictions to trade with the EU.

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In return Norway makes substantial contributions to the EU budget and has to follow many EU rules and laws, but it has no say in how those rules are formed.

“This is not a relationship of equals or anything remotely approximating it,” Mr Hill said. “My recollection is that EEA ministers were extremely grateful just for a meeting and even pleasantly surprised to get a reply to their correspondence. No EEA country had any material ‘rule-shaping’ effect on financial services.

“Of course, the UK’s role and experience in financial services is not remotely comparable to, say, Norway’s. And it is true that we have entwined economies and a long history of working on financial services legislation together.

“But that does not make it more likely that EU member states with competitive financial services interests of their own will go out of their way to make life easy for the city of London once we are outside the EU.”

Battle hard

“The truth is that the UK had to battle hard to maintain the interests of the city when it was in the EU.

“Outside, we should not imagine we will be anything other than a supplicant when push comes to shove and Paris or Frankfurt or Milan or Amsterdam or Dublin or Luxembourg have different priorities from London. That is just how it will be.”

Mr Hill also pointed out that UK regulators would have no real influence over the legislation they would be expected to enforce.

“I also do not see how our regulators, responsible for managing the huge amounts of risk concentrated in London, could feel remotely comfortable about a situation where responsibility for financial stability rests with them, but they have no real influence over the legislative framework which sets the level of risk,” he said.

“I still spend a lot of time talking to regulators, politicians and financial services businesses in the EU. I haven’t met one who thinks that being in the EEA could work for London and Britain’s financial services industry.”