London will not engage in 'tit-for-tat game' with Brussels over financial services, says city boss

Wed 1 Dec 2021
Posted by: William Barns-Graham
Trade News

city of london

Britain will not restrict EU access to the City of London or try to stop UK-based banking staff relocating to the continent, a leading city executive has said.

Sam Woods, chief executive of the Bank of England’s Prudential Regulation Authority, said the UK was “absolutely not in a tit-for-tat game” on financial services market access and staffing.

Brexit consequences

Woods told a banking conference, reported on in the FT, that Britain would continue to be open to banks from other countries.

“The EU has a more location-based view of life and they are implementing that vision, and that is leading to some of the tensions,” he said. “It is a natural consequence of Brexit and we will have to navigate it in a sensible way”.

Lack of a deal

Financial services were largely absent from the UK’s post-Brexit trade deal with the EU and subsequent talks have achieved little.

According to the Institute of Government, an equivalence deal, where both sides accept the regulatory regime of the other, seems unlikely.

Chancellor Rishi Sunak effectively said as much in a Mansion House speech in the summer where he announced a plan to maintain and improve the UK’s financial services advantage.

“We now have the freedom to do things differently and better, and we intend to use it fully,” he said.

Barriers to banks

After the UK left the EU single market last year, the EU said it wanted London-based international banks to have operations on the continent to run their European businesses.

The European Central Bank has also been pushing banks to move more staff from the UK to the EU.

EU commissioner for financial services Mairead McGuinness said that Europe’s reliance in Britain’s clearing infrastructure was “not sustainable” and that the European Commission would continue to work to encourage migrating that activity to the continent, Bloomberg reports.

Further changes

The EU has extended a temporary waiver that allows its banks and money managers to clear trades in the UK, to prevent short-term instability.

However, Brussels also plans to stop almost all cross-border selling from non-EU countries into its single market, a move that would affect lenders in London who have relied on these arrangements after Brexit, according to the FT.

Banks still love London

There has been some push back from European banking groups that have demanded long-term access to London’s multi-trillion dollar derivatives trading market.

According to the Telegraph, finance trade bodies said that the bloc faces a “cliff edge” unless it extends exemptions that allow trades by EU institutions to take place in the UK.

Divergence

Meanwhile, UK financial regulators are to be given a freer hand to rewrite financial regulations to attract business from overseas.

According to Bloomberg, the move underlines the growing split between the UK’s financial services industry and the EU with likely regulatory divergence making market access less likely.

It could include areas such as initial public offerings, green finance and cryptocurrencies.