EU's Tusk says 'we don't want to build a wall' with UK

May's spokesman said Britain hoped the final guidelines "will provide the flexibility to allow the European Union to think creatively and imaginatively about our future economic partnership".

"We should all be clear that, also when it comes to financial services, life will be different after Brexit". Rival cities within the bloc are battling to draw highly-paid banking jobs and the revenues they bring.

The EU allows access to foreign financial firms if it deems their domestic rules to be "equivalent" or as robust as the bloc's own regulation.

"This is why we cannot offer the same in services as we can offer in goods. And where rules do evolve differently, we will need an objective process to determine whether they provide sufficiently equivalent regulatory outcomes", he said.

The draft guidelines also touch on dispute settlement, arguing that if EU legal concepts are used then the European Court of Justice (ECJ) needs to have a role, which is usually a red line for the UK.

British Finance Minister Philip Hammond said he was not surprised that Tusk had set out "a very tough position" as new negotiations start.

Meanwhile, Confederation of British Industry deputy director-general Josh Hardie said "trying to forge a new trading relationship with our largest trading partner by not including financial services is like building a ship with no sails". Services are about common rules, common supervision and common enforcement.

Speaking at a press conference in Luxembourg just hours after sending the guidelines to the member states, Tusk said Brussels hoped for an "ambitious and advanced" free trade agreement (FTA) with zero tariffs on goods but limited access for services.

"In fact, this will be the first free trade agreement in history that will weaken economic relations rather than strengthen them".

EU negotiators have repeatedly stressed that punishment is not a motivation in Brexit talks, but a report published by the European Commission last December suggested the EU could insert a "punishment clause" in any trade deal to allow Brussels to place tariffs on some British exports.

The resolution also notes that tax issues must be integrated into any additional UK-EU agreement to ensure a maximum level of cooperation between the Community and the United Kingdom and its dependent areas in the field of corporate taxation.

"The potential for financial services to be a necessary part of the future deal is still on the table in the draft European Union negotiating guidelines".

"Such an agreement can not offer the same benefits as Membership and can not amount to participation in the Single Market or parts thereof", the text read.

Financial services expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com, said that Hammond's speech was "what many financial services firms will have been wanting to hear for some time, although it still doesn't provide answers as yet and the European Union even launched a pre-emptive rebuttal".

"The EU can not grant the rights of Norway, with the obligations of Canada", Tusk said, who described May's approach as "pick and mix".

  • Rogelio Becker