UK and EU secure Memorandum of Understanding on financial services but no progress on equivalence

Mon 29 Mar 2021
Posted by: William Barns-Graham
Trade News

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The UK and EU confirmed on Friday that they have agreed a Memorandum of Understanding (MoU) to continue talks and co-operation on financial services.

A government announcement said the MoU, once signed, would create “the framework for voluntary regulatory cooperation in financial services between the UK and the EU”.

Next steps

According to the FT, the MoU is a key step before Brussels considers granting further EU market access measures for banks and financial companies in the City of London.

The deal meets the end of March deadline for this stage of equivalence negotiations.

Forum

The MoU will establish a Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues.

A draft of the memorandum seen by the FT, said the forum’s activities should include “reducing uncertainty” and “identifying potential cross-border implementation issues”.

It also foresees twice-yearly meetings of the UK chancellor and the EU commissioner for financial services.

Market access

An MoU will not automatically lead to market access for UK firms, City AM reports. The agreement is similar to the existing deal between EU and the US and the bloc has declined to grant any long-term direct access to British firms so far.

According to the Telegraph, banking insiders have largely given up any hope of being granted equivalence and expect agreements to fall well short of free market access.

“While the UK can dream about equivalence unlocking the door, the reality is likely to be limited to a few wholesale areas, contingent on good behaviour and unilaterally revocable,” said Simon Morris, a partner at law firm CMS. 

“The EU has repeatedly said that the UK can only hope for a second-class ticket offering,” he added.

BoE push back

The industry’s low expectations mean some banks are pushing ahead with plans to relocate London bankers into Europe.

However, the Bank of England is demanding that lenders seek its approval before relocating UK jobs or operations to the EU, the FT reports.

The BoE is concerned that European regulators are asking for more to move than is necessary for financial stability after Brexit.

'Over-reach'

Its stance has been criticised as regulatory “over-reach” by international bankers.

“Being told in advance of banks’ plans is one thing, but requiring regulatory approval first is quite another,” one senior adviser to a US bank in London told the FT.