An empty street in the financial square mile district of the city of London on 4 January.
Photographer: Jason Alden / Bloomberg
Photographer: Jason Alden / Bloomberg
The European Union is in no hurry to reopen its doors to the British financial industry, destroying any lingering hopes that the Brexit trade deal will unlock market access for banks and other financial firms.
Officials in the 27-nation bloc emphasized on Monday that the EU will not speed up its assessment of the UK’s plans to regulate its financial sector and underlined that granting market access remains a unilateral decision that is not up for negotiation.
The industry was left out of the free trade agreement the two sides signed last year. Relationships now depend on a process known as equivalence, in which each side grants access to the market if the other’s rules are found to be rigid enough. Until this is resolved, UK companies will have to rely on bases in Frankfurt, Paris and other EU cities to continue to do business with customers there.
“Equivalence requires a certain degree of alignment. But this degree of alignment needs to be discussed and agreed area by area ”, Almoro Rubin de Cervin, responsible for international relations in the financial services department of the European Commission, said a committee of the European Parliament on Monday. “Equivalence as a process will take a while.”
Although the United Kingdom started its life outside the bloc on January 1 with an almost identical set of rules, authorities are contemplating changes in several areas. Bank of England Governor Andrew Bailey said the UK should not be bound by EU standards as a price to gain access to the market.
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As a first step, the UK and the EU are working on the ground rules for financial services cooperation by March. But the authorities in London should not confuse this with a negotiation on market access, warned Rubin de Cervin, adding that the planned memorandum of understanding will not restrict the EU in its decision-making.
If the distance between the two sides is not significant, the deadline for reaching an agreement is “definitely achievable”, according to the official. “But if the UK arrived at the MOU table with excessive demands, for example, in terms of restrictions on decision-making, it would take longer.”
Since the UK voted to leave, the EU has taken a hard line on financial services, ignoring several proposals on how to improve cooperation beyond its standard structure for dealing with companies outside the bloc.
“There is no parallel negotiation of financial services. The deal is closed, ”French Junior Minister for EU Affairs, Clement Beaune, said on Bloomberg TV interview on Monday. “There is a unilateral framework for equivalence in the hands of the EU. Now we will be looking at, is our analysis to be done, the financial regulations of the UK markets to see if we think they are protective enough, regulated enough, to give ad hoc and unilateral access to our market. “
The UK lost around 6 billion euros in daily stock trading on the first business day after the Brexit transition period, adding momentum to the voices demanding to soften the rules and help the city gain a competitive advantage over European rivals. One such move came when the UK Treasury said it plans to allow trading in Swiss shares, reversing the EU ban on activity.
The EU is also reflecting on changes to its rules, making alignment assessments more complex. “To some extent – and that is part of the difficulties in the future – we will be two moving targets,” said Rubin de Cervin.