Is it worth it? UK banks question EU access after Brexit

* UK finance sector doubt usefulness of EU equivalence

* Squaring EU access with UK autonomy on rules a challenge

By Huw Jones

LONDON, Oct 28 (Reuters) - Direct access to the European
Union after Brexit may not be worth the cost if Britain has to
align itself with EU rules covering only a narrow range of
activity, financial industry officials have said.

The UK financial sector's single biggest customer is the EU
and it currently enjoys "passporting" or unfettered access to
the bloc. But this will end after Britain exits the bloc.

Future trade will be based on "equivalence", the EU's system
of access to foreign firms that Brussels deems to have home
rules as strict as those in the bloc.

"The UK will be the most equivalent country in the world,"
Nausicaa Delfas, executive director international at Britain's
Financial Conduct Authority, told Reuters on Monday.

She urged Brussels to take a technical and not a political
approach to determining UK equivalence.

Equivalence-based EU access amounts to 5-10% of cross-border
business under passporting, and Britain wants Brussels to
"enhance" the system to make it more predictable and
transparent.

This could include a "mechanism" to deal with any divergence
in rules as Britain does not want to become a permanent "taker"
of EU regulations.

Antony Manchester, a managing director at BlackRock, said
weighing up the advantages of equivalence would be easier for
Britain if the EU were to enhance it.

"Otherwise you end up with a situation where it's all or
nothing," Manchester told a City & Financial conference on
Brexit. "I hope that the reality of interdependence creeps in...
otherwise you end up with closed European markets."

Over 300 banks, insurers and asset managers in Britain have
opened EU hubs to serve their customers directly from inside the
bloc, which limits the usefulness of Britain pushing hard for
equivalence.

AMBITIOUS

The UK financial sector proposed a broader and novel "mutual
recognition" approach two years ago, whereby the UK and EU would
agree to accept each others' rules. But the EU shot it down -
believing Britain should not enjoy the same privileges outside
the bloc as it did inside.

"Asking the EU to change equivalence is actually equally
ambitious as the mutual recognition model," said Conor Lawlor,
director of Brexit policy at UK Finance, a banking body.

Jon Whitehouse, group head of government relations at
Barclays bank, said that how quickly or willing the EU might be
to change equivalence is a "big question".

But the question should be whether Britain wants equivalence
in the first place, and whether its cost outweighs the benefits,
according to Alexandria Carr, head of European regulatory change
at HSBC.

"The cost can be great and the direction of travel is
increasing the cost of equivalence," Carr said.

Brexit has prompted the EU to toughen up equivalence
conditions for foreign clearing houses and for foreign
investment firms, with EU supervision now becoming part and
parcel of determinations.

Lawlor said it was also unclear how Britain will reconcile
meaningful EU market access with not wanting to become an EU
rule taker.

"There is a direct correlation between regulatory autonomy
and market access. The more you have of one, the less you have
of the other," he said.

Britain's financial services minister John Glen told the
conference he wanted an "agile" regulatory approach and that
Britain was weighing up equivalence in key areas "very
carefully".
(Reporting by Huw Jones
Editing by Mark Heinrich)