Photographer: Niklas Halle’n / AFP / Getty Images
Photographer: Niklas Halle’n / AFP / Getty Images
The UK will start negotiations with the European Union this week on how regulators will cooperate with financial services now that Brexit has ended.
The financial services industry was largely sidelined in the trade deal with the bloc by Prime Minister Boris Johnson shortly before Christmas, but the two parties agreed to negotiate a Memorandum of Understanding on regulatory cooperation by March.
“We want to preserve financial stability, market integrity and the protection of investors and consumers,” Johnson spokesman Jamie Davies told reporters on Tuesday. “We are pushing for a broader agreement on financial services as part of the negotiations, and the Treasury will continue this work with the commission starting this week.”
How ‘equivalence’ is the key to post-Brexit banking: QuickTake
The end of Brexit’s transition deals last month threatens the City of London’s dominant position in financial services, which accounts for about 7% of the UK’s economic output. Treasury Chancellor Rishi Sunak and Treasury Economic Secretary John Glen will both be involved in the negotiations, the government said.
The MOU aims to establish the framework for regulatory cooperation to allow “bilateral exchanges of views and analyzes related to regulatory initiatives and other issues of interest”, according to a joint declaration in December.
It also seeks to establish a process to establish the adoption, suspension and withdrawal of so-called “equivalence” decisions. This process, which is separate from MOU negotiations, involves both parties accepting that their rules are as strict as each other, allowing banks and other financial companies to do business smoothly across borders.
Equivalence rules
It is these equivalence rules that the United Kingdom is seeking, after unilaterally issuing a set of its own decisions last year to allow EU financial institutions to continue operating in Britain.
A comprehensive deal would help preserve London as an EU funding hub, but that may not be the bloc’s priority. It has long wanted to have more financial infrastructure that caters to EU and euro area economies based in member countries.
Officials from the 27-nation bloc emphasized on Monday that the EU will not rush its assessment of the UK’s plans to regulate its financial sector and underlined that granting access to markets remains a unilateral decision that is not up for negotiation.
Read more on From the EU position
The EU has granted two major equity decisions for the UK in 2020 – but with 28 areas still open, it is unclear how much investment banking business can remain in the UK.
The early days of Brexit have already revealed what is at stake, with London losing 6.3 billion euros in daily stock trading to EU locations on January 4, the first business day after the transition period.
– With the help of Silla Brush, Alexander Weber and Harry Wilson
(Updates with details on equivalence conversations across.)