UK and EU close to deal on financial services — report
UK officials say London will get basic EU access
The UK and the EU have made progress on a deal to give London’s dominant financial centre basic access to EU markets after Brexit, two British officials say, but no final agreement has yet been clinched.
The deal being discussed would be based on the EU’s existing system of financial market access known as “equivalence” — a watereddown relationship officials in Brussels have said all along is the best deal Britain can expect.
The Times newspaper said a tentative deal had been reached on all aspects of a future partnership on services, as well as exchange of data and including what would amount to a concession from the EU on bending the “equivalence” rules.
Officials in both Brussels and London said that The Times report was wrong.
“We are making progress,” said a British official, who spoke on condition of anonymity.
A second British official, also speaking on condition of anonymity, said that while there was progress, nothing was finalised yet.
A spokesperson for Prime Minister Theresa May said reports of a deal were speculation and that Britain wanted to go beyond the existing equivalence regimes.
The European Commission said a future financial services agreement would only be discussed after a Brexit divorce deal has been finalised.
Talks over a broader deal are mired in a disagreement over an Irish backstop — an insurance policy to ensure there will be no return to a hard border in Ireland if a future trading relationship is not in place in time.
Many top bankers fear Brexit will slowly undermine London’s position as the world’s biggest international financial centre, and a Reuters survey found that, so far, just more than 600 are moving away.
Global banks have already reorganised some operations ahead of Britain’s departure from the EU, due on March 29.
The pound jumped following The Times report, reaching $1.2905 in early trading and extending gains after the Bank of England hinted at a slightly faster pace of interest rates increases. Britain is home to the world’s largest number of banks and hosts the largest commercial insurance market.
About €6-trillion or 37% of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris.
In addition, London dominates Europe’s €5.2-trillion investment banking industry. While New York is by some measures bigger, it is more centred on US markets.
BREXIT AND THE CITY
Since Britain voted to leave the EU more than two years ago, some of the world’s most powerful finance companies in London have been searching for a way to preserve the existing cross-border flow of trading.
The arrangements being discussed fall far short of that. Inside the EU, banks and insurers in Britain enjoy unfettered access to customers across the bloc in all financial activities. Equivalence covers a more limited range of business and excludes major activities such as commercial bank lending.
“Our objective is to go beyond existing EU equivalence regimes and agree a new economic and regulatory partnership with the EU in financial services,” a spokesperson for May said. “This would be based on the principle of autonomy for each side over decisions regarding access to its market.”
Under the current system, Brussels can scrap an equivalence designation within 30 days in some cases — a step it has never taken — and Britain has called for a far longer notice period. The Times reported that neither side would unilaterally deny market access without first going through independent arbitration and providing a notice period significantly longer than 30 days.
An EU official, who spoke on condition of anonymity, took the unusual step of directly denying The Times report, as did an official from Britain.
The EU official said there was no such thing as guaranteed access to the EU market and that the equivalence regime, which the EU has been offering to Britain since July, could only ever be unilateral.
Supporters of Brexit had hoped that leaving the EU would allow them to dispense with EU rules on financial services such as caps on bankers’ bonuses to turbo-charge London as a financial hub.
Britain’s Financial Conduct Authority said on Wednesday that UK financial rules should stay aligned with those in the EU after Brexit, a basic condition for Brussels to grant equivalence.
Faced with having Europe’s biggest financial centre on its doorstep, the EU has begun tightening conditions for equivalence in areas such as clearing derivatives and investment banking.
Britain on Wednesday said there was no set date for Brexit talks to finish, backtracking after Brexit minister Dominic Raab suggested terms could be finalised by November 21.