UK-EU economic ties to get more confusing

Banks, brokers and asset managers continue to face uncertainty

The 600-page new Brexit deal has added more confusion to the future of economic relations between the United Kingdom and the European Union, according to reports.

Customs union

The Brexit deal is only hours old, but disagreements between UK and EU officials over what it means have already begun. Buried among the hundreds of pages published on Wednesday, there’s reference to the two sides pursuing comprehensive arrangements in their future relationship, ‘building on the single customs territory’ set out in the draft divorce treaty.

To many in Brussels, that’s quite a clear indication that the EU thinks the UK will remain in a customs union.

According to a Guardian report the UK was understood to have agreed that an independent arbitration committee will judge when a UK-wide customs backstop could be terminated, comprising an equal number of British and EU representatives plus an independent element.

Northern Ireland

Ministers were expected to study the Northern Ireland specific elements in the backstop deal. A Guardian report quoting UK government sources said the region would not be treated differently in customs terms, although Brussels sources said Northern Ireland would have special status in the backstop in terms of the customs union and single market.

Fisheries

According to the available information, the British negotiating team won a victory in persuading Michel Barnier, the EU’s chief negotiator that the detail of any fisheries arrangement will be in the political declaration.

Environmental regulation

The backstop will also require the UK to maintain a “level playing field” with the EU on social and environmental regulation, with negotiators understood to have “heavily boosted” what that will mean with clear detail.

Financial Markets

In almost 600 pages of documents released late on Wednesday, there were three short paragraphs devoted to financial services. Under the envisioned regime, the UK will be dependent upon EU goodwill; Brussels officials will have unilateral power to shut the door on short notice if they determine there’s not a level regulatory playing field.

Even if the UK Parliament clears the Brexit agreement — and that’s still far from a sure thing — negotiations on a new financial rule book will continue well into 2020. The bottom line is that banks, brokers and asset managers continue to face talks going off the rails.

“Our message to businesses continues to be: prepare for the worst, hope — and advocate vigorously — for the best,” Charles Brasted, a partner at the law firm Hogan Lovells, said in a statement.