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Executives in London’s City, the UK’s financial center, are questioning steps the UK government is taking to secure access to the European markets in the post-Brexit landscape. The United Kingdom has been pressing for equivalence as a way forward for UK regulated financial services companies to continue to offer their products to clients in the European Union.
While the Brexit deal announced on the 31st of December has largely avoided large-scale trade disruptions, it fell far short of the result financial executives had hoped for, with equivalence being the corner-stone of their demands.
Under an equivalence deal, financial regulators in the EU would be able to grant access to UK firms if the UK’s regulatory framework was seen as similar to their own.
Under the existing passporting system, financial services companies regulated in one EU member state are allowed to offer cross-border services to citizens of other member states. Post-Brexit that ceased to be the case for UK firms currently operating in the EU under the terms of the TTP (Temporary Transitional Power), which expires on the 31st of March this year.
A more permanent form of an equivalence deal would be a long time in the making. The EU has no real incentive to agree to a deal. In the absence of any equivalence, UK firms wishing to offer services in the bloc would have to establish entities in an EU member state and abide by the relevant regulatory framework.
Many in the industry believe the prospect of a full equivalence deal to be remote at best. In the EU, there is little political will to do a deal with the UK, and the idea of any further concessions to secure a deal is seen as anathema to the UK authorities.
As Bob Diamond, former chief executive of Barclays, put it:
“I would expect the UK government to achieve some select equivalence in areas such as data uniformity or insurance, both of which have been easily agreed with the US and other Third Countries. Equivalence across financial services as a whole appears to be a political non-starter for both sides.”
The City has always been seen as the stand-out example for financial oversight, with the UK holding a prominent position in the global financial markets. In many cases, the framework of financial oversight for firms in the square mile is far more stringent than any EU member state framework. The EU’s love of over-regulation, however, is seen as detrimental to business development, prompting some industry veterans to question the need for equivalence in the first place, equivalence which can be withdrawn at the drop of a hat in any case, the EU’s rush to trigger Article 16 of the withdrawal agreement and their subsequent about-face in the matter seen as prime example of the fickle nature of the EU parliament and commissions.
As a spokesperson for the UK’s Treasury department put it:
“We are committed to working with the EU on financial services – as set out in the joint declaration – to establish a stable and durable relationship which supports financial stability, market integrity, and consumer protection. The Chancellor has also recently set out ambitious plans to renew the UK’s position as the world’s pre-eminent financial center – making it more open, technologically advanced, and a global leader in green finance.”
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