EU Says U.K. Banks Must Retain Its Standards to Keep Access

European Union finance ministers threw down the gauntlet to the U.K., warning that London banks will lose access to the bloc if Britain veers from financial regulations written in Brussels.

In a speech on Tuesday, Jeroen Dijsselbloem, head of the group of euro-area finance ministers, cautioned Britain against any plan to use lighter-touch regulations or lower taxes to attract business following withdrawal from the EU. Such a move would jeopardize prospects for a trade deal, he said, as he called for Britain to accept the “hard truth” that the U.K. must continue to align with Brussels for its businesses to operate on the continent.

“We have heard threats of going rogue and creating an offshore tax haven,” Dijsselbloem, the Dutch finance minister, said in Brussels. “That would be a huge mistake, and it would certainly stand in the way of a fair trade deal that would suit us both.”

The speech follows British Prime Minister Theresa May’s suggestion that the U.K. is prepared to use all tools at its disposal to attract business to the country if the EU declines to offer a post-separation arrangement that is acceptable to her government. In her Jan. 17 speech laying out her priorities for Brexit, May said “no deal for Britain is better than a bad deal” and that the country would have more freedom to embrace policies to attract companies and investors.

EU officials have responded that such a move would damage the prospect of getting a trade agreement, while cautioning that far from regaining its legislative autonomy, the U.K. may end up being forced to comply with legislation on which it has no input.

“It is unthinkable that the EU will allow U.K.-based financial institutions full access to do business in the internal market without a sustainable coupling of future dynamic U.K. standards to the EU framework,” Dijsselbloem said. “At the same time I realize that, given the promise of full sovereignty, this will be a hard truth to accept in Britain.”

A transition period in the relationship between the two sides after Britain leaves the bloc will be necessary to avoid a disruptive process that would damage both of them, according to Dijsselbloem.