22 February 2021

Bloomberg: 5 things to know about post-Brexit talks on financial services

The U.K. and EU are in discussions for a cooperation agreement on regulating financial services. But the talks are not headed toward any binding commitment to open doors for business.

Europe's draft proposal for the memorandum of understanding, obtained by POLITICO and reported on Wednesday, is unlikely to pave the way for Brussels to recognize the “equivalence” of British rules — dashing the hopes of some City of London figures to claw back business that's shifted to the EU27 since Brexit.

Here are the most important things to know about the EU-U.K. MoU and relations in finance.

1. What the draft says

Europe's proposal is typical of many regulatory MoUs, including the EU's with the U.S. and the U.K.'s with Japan. It pays homage to upholding international standards and G20 objectives, while promising to try to clear obstacles to cross-border trade. Authorities would pledge to share information about regulatory plans in hopes of avoiding conflicts that make life harder for business.

The draft also states categorically that equivalence findings remain unilateral decisions, meaning the U.K. would have no recourse if the EU opted to withdraw it.

The U.K. will be subject to a "bog standard" equivalence process that, even if successful, will leave the financial sector caught up in a "capricious" system, Ivan Rogers, former U.K. ambassador to the EU, told an event on Thursday. "It's excessively politicized," he said of the equivalence system.

The European draft MoU would create a “Joint EU-UK Financial Regulatory Forum,” resembling one that regularly brings together Brussels and Washington officials. Still, it would be strictly “informal,” carrying no legal obligation, under the proposal.

“It’s a talking shop,” said Nick Collier, head of the City of London Corporation’s Brussels office, when briefing MPs last month.

2. What the financial industry thinks

Politics could creep into the forum and distract EU and U.K. officials from equivalence or other technical aspects of cross-border business, in the view of PricewaterhouseCoopers’ director for European financial regulation, Brian Polk.

“If decisions were more able to be taken more on their technical merits, there would be greater comfort that the framework could lead to more predictable decision-making between the two sides,” Polk said.

“I think industry is likely to continue to feel that there’s a lot of work to get to a point where the stalemate to progress will be broken,” he added.

3. ‘Twas ever thus

Some London commentators and financiers have argued the U.K. government could have won more access for the sector to the EU's single market. But Brussels officials have always ruled out the idea.

Michel Barnier, the Commission’s chief negotiator — and formerly chief for financial services — said as early as 2017 that trade talks would exclude finance. A year ago, he rubbished Britain's fallback proposal of agreeing on regulatory equivalence. Even that covers only select parts of the industry, and provides true market access for just a few.

Equivalence decisions are a perishable commodity, meanwhile, because the longer it takes to reach them, the more the industry adapts by, for example, simply setting up a duplicate business across the Channel.

This is a risk for Europe, as well. By locking out London in order to gain control over financial trading by EU27 firms, it could also cut itself off from the rest of the world, for which Britain remains a gateway.

4. What the UK can do

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