A dragon statue in the City of London. Green MEPs have written to the European Commission to argue that the deal does too little to prevent the UK from embracing a ‘Singapore on Thames’ model
Green MEPs have written to the European Commission arguing that the deal does too little to prevent the UK from embracing a ‘Singapore on Thames’ model © Hollie Adams/Bloomberg

The EU is being urged to withhold legal permits allowing UK financial services companies easy access to the single market until Brussels gets tougher commitments from London to crack down on money laundering and tax avoidance. 

Green MEPs have written to the European Commission complaining that the provisions in the EU-UK trade deal on financial transparency and corporate taxation are insufficiently stringent and urging Brussels to do more to hold the UK’s feet to the fire. 

Philippe Lamberts, co-chair of the European Parliament’s green group, and Sven Giegold, a German MEP who is economic policy spokesperson for the Greens/EFA group, write in the letter seen by the Financial Times that the deal does too little to prevent the UK from embracing a “Singapore on Thames” model. 

“Being faced with the threat of a much more uneven level playing field when it comes to tax co-operation and money laundering, the European Union must take a more holistic and political view on the market access for the financial firms of the City of London,” they wrote in a letter to commission president Ursula von der Leyen and chief negotiator Michel Barnier. 

“We strongly recommend that the leverage we still hold over the United Kingdom in granting it access to the single market for financial services or not should be used to the maximum extent in order to gain robust commitments against tax dumping and in favour of financial transparency.”

Brussels has attempted to restrict the UK’s ability to undercut the EU by embarking on a dash for deregulation, insisting in the trade deal that Britain sign up to “level playing field” provisions in areas including the environment and state aid.

But the MEPs’ letter complains that the deal does not go far enough regarding tax and transparency. Corporate tax avoidance measures are limited to the global rules of the OECD, and do not include the EU’s tax haven list and code of conduct on business taxation, they argue. 

The MEPs also write that taxation and anti-money laundering (AML) rules are excluded from the deal’s “rebalancing” provisions, which are intended to deal with regulatory differences in the future. Its subsidy rules would fail to protect the EU against a “potentially aggressive” approach to corporate taxation by the UK, they argue.

The commission declined to comment on the letter. But the two sides have signed up to a “good governance clause” and commitments to uphold standards in areas such as exchange of tax information and public tax transparency. They also set out a joint declaration on countering harmful tax regimes. 

Tove Maria Ryding, a tax expert at the European Network on Debt and Development, said the provisions in the trade deal in the area of tax and money laundering were generally “weak”, adding: “The deal relies heavily on the international standards that we know are insufficient. In areas where the EU has gone further than the global standards, the risk of international tax dodging now seems higher — for example in relation to transparency requirements under the fifth Anti-Money Laundering directive.” 

To keep the UK in line, the MEPs urge Brussels to use their powers that control UK banks, brokers and exchanges’ easy access to the single market. This depends on legal permits known as equivalence decisions, which are based on the EU recognising Britain as having supervisory and regulatory standards equal to its own. 

Brussels has handed out just a handful of temporary permits as it seeks to lessen its dependence on the City of London for finance.

However, Alasdair Holt, a partner at law firm Linklaters in London, said threats to withhold equivalence were tempered by the fact that UK financial services companies were already having to adjust to life without it. The UK would also struggle to ease standards because of its commitments to global banking standards.

“The UK has control over its regulatory regime and are deciding how best to use that autonomy but there will always be a strong anti-money laundering regime for attracting international investment. [Authorities] want the UK to be a credible place to do business,” Mr Holt said.

Some politicians agreed the UK was unlikely to seek to significantly undercut the EU given shared commitments to international standards, including those set by the OECD and the Financial Action Task Force.

“If the United Kingdom does not want to lose all credibility as an international actor, there is a baseline that the UK cannot go below,” said Markus Ferber, an MEP from the centre-right European People’s party. “After all, I do not think that the UK will have any desire to find itself placed on AML or taxation blacklists.”

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