The UK government appears to have backed down over its position regarding the post-Brexit model for the City, just weeks after it dropped its demand for mutual recognition.

The UK government's Brexit white paper had laid out its call for an "expanded equivalence" model after leaving the EU, describing it as a “reciprocal recognition of equivalence”.

It was envisaged as a new economic and regulatory arrangement based on the principle of autonomy for each party over decisions regarding access to its market”.

According to the Financial Times, UK negotiators have told their counterparts in Brussels that this does not mean an independent third party would be the arbiter in questions over market access, and that the EU would still retain the ability to unilaterally withdraw access in the case of divergence, for example.

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According to the newspaper, the government insists this is not a softening of its position, arguing Brussels had misinterpreted critical sections of the official document.

Chief negotiator Michel Barnier had already rejected the UK's proposals on this basis, but is now said to have come around to the proposals after receiving this clarification.

Barnier’s shift in outlook was hinted at during a press conference with new Brexit secretary Dominic Raab last week.

“We . . . agreed that future market access will be governed by autonomous decisions on both sides,” Barnier said. “We recognised the need for this autonomy, not only at the time of granting equivalence decisions, but also at the time of withdrawing such decisions.”

But the City has argued heavily against such a basic form of agreement, stressing that it would fail to underpin a market the size of London's, with all the inherent risks that come with it, as well fail to recognise the importance it plays as a global financial hub.

When the white paper was first unveiled, City figures stressed that existing models of equivalence were not sufficient and would need to be significantly improved if they were to prevent damage to the financial services eco-system.

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