Expectation of UK financial services deal boosts pound

After months of wrangling and with the clock ticking down to the United Kingdom’s exit from the European Union, there may be a glimmer of light at the end of the Brexit tunnel, with reports suggesting a deal has been struck guaranteeing the UK’s financial services sector continued access to Europe.

The pound rose 1 percent against the dollar on the back of the story in the Times newspaper that said the UK’s financial services companies will be able to operate in Europe, post-Brexit, as they do now.

The article said a preliminary deal on the future exchange of data had also been agreed, and that both deals would be completed within three weeks.

But the BBC said a government source described the report as “a rather rose-tinted interpretation of where we have got to” and that “people shouldn’t get ahead of themselves”. The Guardian newspaper was also cautious, saying Downing Street insiders said talk of a deal was “very premature”.

Brussels has ruled out continuing with the existing “passporting” system that oversees financial services within the trading bloc but indicated it might let UK financial services companies operate in Europe if the UK has “equivalent” regulations to EU rules, a system known as “equivalence”. It is not known whether the purported deal is on equivalence, or if it is on so-called “equivalence-plus”, which would go further.

British voters decided to leave the EU in a referendum in 2016 and, according to the EU’s rules, the nation will leave at the end of March. Negotiators have been meeting ever since to thrash out a divorce deal but have been thwarted, largely by their failure to find a way to avoid having a hard border between Northern Ireland and the Irish Republic.

The UK’s lead Brexit negotiator, Dominic Raab, has said a divorce deal could be finalized by Nov 21. Bloomberg reported he wrote a letter to Parliament’s Brexit select committee, which came to light on Wednesday, in which he said “a great deal of progress” had been made in recent weeks, thanks, in part, to new British proposals on the Irish border issue.

“I would be happy to give evidence to the committee when a deal is finalized, and currently expect Nov 21 to be suitable,” he wrote.

Officials working for the EU’s chief Brexit negotiator, Michel Barnier, were also upbeat this week, telling ambassadors from the bloc’s remaining 27 countries on Wednesday that there was a more positive mood around negotiations.

The UK and EU have already agreed that the UK will effectively continue to function as if it is within the EU for the first two years after it leaves.