An influential Lords committee has accused Brussels of holding the City of London to a higher standard than communist China in granting it access to EU financial markets after Brexit.
A report by the Lords European affairs committee concluded that the EU was playing politics over its decision to lock firms in the Square Mile out of the single market.
The bloc has refused to grant the UK regulatory “equivalence”, which permits non-EU countries access to its markets based on how similar, or equivalent, its rules are, despite Britain’s rules being broadly in line with its own.
Lord Kinnoul, chairman of the committee, said: “China has been granted equivalence by the EU in a dozen or more areas. It looks odd and wrong that the UK has not been granted this considering we are democracies of a similar character.”
The report found that the EU’s decision was “political rather than technical” and that the UK is “being held to a higher standard than other countries”.
It comes as the bloc attempts to engineer a raid on the Square Mile by forcing its financial services companies to shift lucrative activity and staff from London to the Continent.
Miles Celic, chief executive of TheCityUK, a lobby group, told the Lords committee that “there has always been a degree of politicisation to equivalence”.
Lord Kinnoull said the equivalence decision and a memorandum of understanding on financial services between the UK and EU were “caught up in the Northern Ireland protocol debacle”.
Lord Hill, a former EU commissioner who led a review last year of the UK’s listings rules, told the committee: “They [the EU] think that an equivalence decision is a plum to give, and why would you give that, before you know you want to give it and in exchange for something else?”
He also said the war in Ukraine highlights how democracies should work together when it comes to financial regulation: “What we have seen during the current crisis is that the financial system, the payment system, is part of defence and security.”
Meanwhile a top City lawyer pointed out that the EU’s decision not to grant the UK equivalence has forced companies to do business elsewhere.
Peter Bevan, a partner at City law firm Linklaters, said: “It seems extraordinary, really, that when Europeans and UK counterparties want to trade with each other, they have to go to another continent to find a venue to do so.”
The report also found that despite challenges, the UK’s financial services sector has retained its “resilience”, but added that the Government should not be “complacent” about regulatory scrutiny and jobs moving from the UK to the EU.
Separately, the Treasury select committee has launched a sub-committee to scrutinise new post-Brexit regulatory proposals for financial services.
It comes after MPs last week warned Rishi Sunak that Brexit is not an opportunity to turn the City into “Singapore-on-Thames”.
Mel Stride, chairman of the Treasury select committee, said: “Following the UK’s exit from the EU, our regulators have assumed significant new responsibilities. Those will require scrutiny, and Parliament has an opportunity to put in place a process which is less bureaucratic and significantly more nimble than was previously the case in the European Union.
“The Treasury Committee is well placed to conduct this scrutiny. We often consider new regulatory proposals and, given our responsibility to scrutinise the Treasury and its associated regulators, we can take a holistic view of regulatory change.”