Bloomberg | 12 January 2021
UK to start talks with EU on finance cooperation this week
By Alex Morales and Tom Metcalf
The U.K. will begin talks with the European Union this week on how regulators will cooperate over financial services now Brexit has been completed.
The financial services industry was largely sidelined in the trade deal struck with the bloc by Prime Minister Boris Johnson just before Christmas, but the two parties agreed to broker 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’s spokesman, Jamie Davies, told reporters on Tuesday. “We did push for a broader agreement on financial services as part of the negotiations, and the Treasury will continue that work with the commission beginning this week.”
The end of Brexit transition arrangements last month threatens the City of London’s dominant position in financial services, which accounts for about 7% of the U.K.’s economic output. Chancellor of the Exchequer Rishi Sunak and Economic Secretary to the Treasury John Glen will both be involved in the talks, the government said.
The MOU is intended to set the framework for regulatory cooperation to allow for “bilateral exchanges of views and analysis relating to regulatory initiatives and other issues of interest,” according to a joint declaration in December.
It also seeks to establish a process for establishing the adoption, suspension and withdrawal of so-called “equivalence” decisions. This process, which is separate from the MOU talks, involves the two parties accepting their rules are as strict as each other’s, allowing banks and other financial companies to do business seamlessly across borders.
It’s these equivalence rulings that the U.K. is seeking, after unilaterally issuing a set of its own decisions last year to allow EU financial institutions to keep operating in Britain.
A comprehensive agreement would help preserve London as a hub for EU finance, but that may not be the bloc’s priority. It’s long wanted to have more of the financial infrastructure that services the EU and euro-area economies based in member countries.
Officials from the 27-nation bloc stressed on Monday that the EU won’t hurry its assessment of the U.K.’s plans for regulating its financial sector and underlined that granting market access remains a unilateral decision that’s not up for negotiation.
The EU granted two big equivalence decisions to the U.K. in 2020 — but with 28 areas still open, it’s unclear how much investment banking business can remain in Britain.
The early days of Brexit have already laid bare the stakes, with London losing 6.3 billion euros in daily stock trades to EU venues on Jan. 4, the first business day after the transition period.