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By Huw Jones and Andrew MacAskill
LONDON, April 23 (Reuters) - The British government and senior finance executives said they are increasingly confident Europe will offer financial companies generous market access after Brexit, boosting London's hopes of retaining its status as a top global financial centre.
Since Britain voted to leave the EU 22 months ago, some of the world's most powerful finance companies in London have been searching for a way to preserve the existing cross-border flow of trading after it leaves the bloc in March 2019.
"The fog is clearing ... We are already seeing progress," the City minister John Glen told the CityWeek conference in the Square Mile's Guildhall. "The EU have now recognised that there will be some form of market access in financial services, having previously dismissed the idea.
Last month, EU states and the European Parliament formally recognised the need to discuss market access terms for financial services, having previously indicated they wouldn't agree to a deal that would allow finance companies to operate in each others' markets without barriers.
Britain's vast financial services looks set to be one of the most divisive areas in the Brexit negotiations, with Britain demanding a generous deal while the EU refuses to shift from its insistence that Britain's red lines -- such as ending the free movement of workers from the EU -- make that impossible.
Britain has proposed a future trade deal with the bloc for financial services based on mutual recognition of each other's regulation. This model would be maintained by close co-operation between regulators and financial policymakers.
While EU policymakers have so far rejected the idea, saying it has never been done before on such a scale, leading figures in Britain's financial sector reinforced their backing on Monday for the plan.
Mark Hoban, a former City minister and head of the think tank that authored the mutual recognition blueprint, said attitudes in the EU towards a financial services deal are shifting from "punishment to pragmatism".
"Some of the views from member states who are more economically liberal, more outward looking, who regret most our departure, are much more pragmatic about out future relationship. The sands are shifting over time," Hoban said.
Catherine McGuinness, policy chief for the City of London, home to the Square Mile financial district, said mutual recognition was the "only game in town".
The alternative is a one-sided system whereby the bloc grants market access if a foreign country's rules are fully aligned or "equivalent" with its own. Such access can also be terminated by Brussels at short notice.
Last month's agreement by EU leaders spoke about "improved" equivalence, without elaborating.
Jean-Pierre Mustier, chief executive of Italian bank UniCredit Group which has operations in London, said there is a need to ensure that cross-border financial contracts and flow of data are not disrupted by Brexit, and that there is mutual recognition of rules.
"I have no doubt that the end of this public negotiation, we will find a solution... We intend to keep our team here," Mustier said.
But Lorenzo Bini Smaghi, chairman of French bank SocGen, said that while he was also optimistic there will be agreement in financial services, he does not expect it to be as ambitious as the mutual recognition plan proposed by the City.
Norman Blackwell, chairman of Lloyds Banking Group, said even if Britain fails to gain a deal it will remain one of the most important financial centres.
"European trade in financial services to the City is obviously important... but it is not life and death," Blackwell said.
Nevertheless, banks, insurers and asset managers are already moving staff to new hubs in the EU to be sure of maintaining links with customers there, regardless of what is agreed in trading terms.
Some EU policymakers fear that Britain will ease rules for banks in a bid to keep London as a dominant global financial centre after Britain leaves the EU next March.
Glen dismissed talk of a "race to the bottom", a move that would make it much harder for Britain to secure access to the EU's financial market.
"We do not intend to rip up the rulebook after Brexit," he said. (Reporting by Huw Jones and Andrew MacAskill, editing by Elizabeth Piper, William Maclean)