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Brexit accord leaves British finance out in the cold

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Brexit accord leaves British finance out in the cold
People walk past a temporary sculpture installed to mark the centenary of the Armistice which ended the First World War, in the Canary Wharf financial district of London, Britain November 1, 2018. REUTERS/Toby Melville   -   Copyright  TOBY MELVILLE(Reuters)
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By Sinead Cruise, Huw Jones and Andrew MacAskill

LONDON (Reuters) – Britain’s financial services greeted the news of a draft Brexit agreement with weariness and worry on Thursday, citing multiple hurdles the government must overcome before they can Brexit-proof their industry.

Shares in blue-chip banks tumbled after British Brexit Minister Dominic Raab resigned to protest the agreement with the European Union, saying it presented a “very real threat to the integrity” of the UK. Three other ministers followed suit.

News of the resignations – which threaten the survival of Theresa May’s government – pushed UK banking shares even further into the red.

Shares in Royal Bank of Scotland <RBS.L> were trading down 7.3 percent by 1013 GMT, their biggest one-day fall since the June 2016 referendum. Barclays <BARC.L> and Lloyds Banking Group <LLOY.L> dropped 6 percent each.

But even before Raab’s resignation, the industry found little to celebrate in the draft plan May’s cabinet agreed. The plan gives UK banks, insurers and asset managers limited access to European financial markets after a transition period that starts in March and is due to end in December 2020.

Such an arrangement, a regulatory framework known as equivalence, would give Britain access to the EU similar to that of major U.S. and Japanese firms, while tying it to many EU finance rules for years to come.

Industry leaders, including John McFarlane, the outgoing Chairman of Barclays and lobby group CityUK, had hoped policymakers could negotiate an “enhanced equivalence” relationship between the UK’s financial industry and the EU.

But the 568-page document gave little grounds for optimism that such an alliance – offering greater access and tighter safeguards against a sudden loss of rights – could be forged.

“We are not going to get anything more than the U.S. gets. The only addition is that equivalence can be applied for in the transition period, fast tracked,” said a U.S. investment bank official based in London.

    “We don’t really figure in any of this. The deal is all about solving the Irish question and customs union,” the official said. “The rest of it is about divergence and competitiveness for services. Raab has resigned. It all feels very knife edge.”

(Reporting by Sinead Cruise, Huw Jones, Andrew MacAskill, Lawrence White and Iain Withers)

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