The UK and EU are headed for a co-operation agreement on financial services rather than a comprehensive trade deal, meaning an ‘equivalence’ decision granting UK firms continued access to European markets is now unlikely.
Boris Johnson’s Christmas free trade agreement did not include services and the UK and EU remain involved in protracted negotiations over mutual recognition of each other’s’ regulatory systems for finance.
A lack of a substantive deal so far has led the UK’s major banks to pushing for a more global approach to financial services trade, a report released by UK Finance today (22 February) has found.
‘Bog standard’ deal
According to Politico, the draft proposal for a memorandum of understanding, currently being considered, is unlikely to pave the way for Brussels to recognise the equivalent robustness of British rules to its own for financial services.
Instead, the UK will be subject to a “bog standard” equivalence process that will leave the financial sector caught up in a “capricious” system, Ivan Rogers, former UK ambassador to the EU, told the EU-UK Forum during an interview on Thursday.
Best of both worlds
The EU’s financial services chief Mairead McGuinness has also warned the UK that “there cannot be both equivalence and wide divergence” in financial regulation, City AM reported.
She confirmed fears held by many in the City that the EU would demand to know the UK’s future regulatory plans as a prerequisite to any further agreement – a situation Bank of England Governor Andrew Bailey has described as unacceptable.
Improve access globally
Given UK firms now risk losing some of their access to European markets, the sector is likely to start looking elsewhere for future growth opportunities.
A report seen by the FT from UK Finance, which represents UK banks, has urged the Bank of England and Financial Conduct Authority to work with other countries to improve market access.
Opportunity
The report pushes for a more global system of regulation, arguing recognition of other markets’ rules could open up markets such as the US and Japan.
David Postings, UK Finance chief executive, said the UK should “seize the opportunity to be a global champion for free trade in financial services, building on our strengths as the world’s most open and international financial centre”.