The mutual recognition deal proposed by the UK would have allowed Britain to keep selling financial services into the EU's Single Market without following European regulations.
Instead Barnier suggested that establishing equivalence agreements is the main option on offer.
“The EU cannot accept mutual market access without the common safeguards that underpin it” he said, adding that an equivalence system “will operate in a more effective manner if the UK decides not to diverge from our financial regulation”.
In response to claims from multiple City groups that the equivalence system was not designed for a UK-EU trade relationship, Barnier said the EU was improving the equivalence process, he asked, “Why would the equivalence system, which works well for the US industry, not work for the City?”
Barnier concluded that “a significant financial relationship will remain, properly managed and supervised” and that London will continue as a global financial centre.