Speaking in Rome last week, Barnier highlighted recent comments made by the US commerce secretary, Wilbur Ross, on a recent visit to London. Ross met with the trade secretary, Liam Fox, the foreign secretary, Boris Johnson, and the chancellor, Philip Hammond, to discuss a future trade deal between the UK and the US.
"When I hear the US secretary of commerce, Wilbur Ross, call in London for the British to diverge with Europe to better converge towards others – towards less regulation, environmental, sanitary, food probably also financial, fiscal and social - I'm wondering." Barnier said. "The United Kingdom has chosen to leave the European Union. Will it also want to move away from the European model?
"There is behind this European regulatory framework the fundamental societal choices we hold: the social market economy, health protection, food security, fair and efficient financial regulation … it is up to the British to tell us whether they still adhere to the European model," he said.
Barnier's comments are relevant to financial services businesses in the wake of the recent publication of the Treasury report on Solvency II and related consultations by the Prudential Regulation Authority (PRA) on potential "targeted improvements" to the rules. According to its chair, Sam Woods, the PRA has now identified "a number of areas where we can improve our implementation [of Solvency II]".
Insurance expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said: "The potential implications for insurers, and the wider financial services sector, of Barnier's question would be significant. Adopting the EU regulatory requirements, such as those of Solvency II, are a huge and costly exercise for insurance firms. Whilst the prospect of reducing the burden of regulation may seem attractive, there would be a cost for financial services firms both in terms of further regulatory change after a period of significant movement in regulation and in potentially closing off the EU market, assuming some sort of equivalence approach could be agreed."
It is not certain that the UK will reduce regulation. UK prime minister Theresa May's Florence speech in September acknowledged the pre-existing regulatory relationship that exists between the EU and the UK and asked both sides to work towards an "ambitious economic partnership which respects the freedoms and principles of the EU, and the wishes of the British people".
This suggests that the UK is unlikely to reject the European model wholesale. Business lobby groups have made their concerns clear to the UK government over the need for a transition period for financial services, and the London Market Group recently told Insurance Day that it was "more optimistic than two months ago" about the prospects for a trade deal.
"The pressure in Westminster is increasing over the UK legislation for Brexit though questions are being raised by the opposition over the political viability of a transitional period, and firms will be hoping that this does not move attention away from the key questions for financial services, such as the need for a sensible transitional period," said Ashby.