City sees top court as passport to Europe

Europe’s highest court could still rule the City years after Brexit under plans being considered by the government in order to win a wider agreement on access to the single market.

The European Court of Justice could have ultimate jurisdiction for three to five years after Brexit and possibly longer in financial disputes, despite the fact Theresa May has said that ending its role over UK affairs was a “red line”.

The growing view in the City that the ECJ could still be the ultimate authority in financial services comes after The Times reported last week that Brussels also wants the Luxembourg-based court to preside over key rights for EU citizens in the UK, including pensions and welfare payments.

Any sense that the government is prepared to water down its position on the ECJ is likely to anger Brexiteers, who have attacked it as a prime example of the overreaching nature of the EU.

Financial institutions are pushing David Davis, the Brexit secretary, to put ECJ oversight of the City on the negotiating table because they see it as key to getting the EU to agree a deal that would allow them to continue to operate within the single market.

Brexit will remove the “passporting” rights many financial companies use to do business throughout the bloc. They want passporting to be replaced by an agreement that keeps the status quo as much as possible, through a mutual recognition deal between the UK and EU.

Any agreement would be founded on the fact that the UK’s regulations are the same or similar to those of the EU. If an EU member state or company wanted to challenge the agreement, for example on the ground that the UK was veering too far away from keeping its rules the same, there needs to be a way to complain. The question for those working on Brexit issues for the City has been, to what authority? If the complaint goes to the ECJ, that could help to persuade key countries to accept the arrangement.

However, the ECJ’s judges are appointed by EU members, so it would be expected to be sympathetic to their perspective. Several British financial businesses nonetheless back this arrangement, regarding ECJ sovereignty as a lesser evil than no access agreement.

“We get the sense that the ECJ could be discussable for David Davis now, and that the red line could be flexed a bit,” one senior banker said. However, sources believe Mr Davis would probably agree to the ECJ having a role in British financial services only while there was a transitional arrangement.