One of the world’s largest law firms has heaped doubt on claims by the UK that it can negotiate a post-Brexit financial services settlement with the EU within the next three months.
US firm Baker McKenzie – the fourth largest law firm in the world by revenue and the top firm for multinational mergers and acquisitions – has said the EU’s equivalence assessments will continue “well into 2021”.
The City of London will lose its current access to EU markets on 1 January and will instead have to rely on patchwork of regulations from individual member states.
The only way the UK financial services industry can maintain its current access is if the EU grants regulatory equivalence.
This is a classification that will only be given if Brussels deems that the UK will stay roughly within the EU’s regulatory orbit for financial services.
Last week’s post-Brexit trade deal outlined plans to set up a dialogue between the UK and EU to discuss a potential equivalence deal, with March set as a rough deadline.
Mark Simpson, a partner in Baker McKenzie’s financial services unit, said this timeframe was very unlikely to yield results.
He said: “Equivalence is not as straightforward as either the EU or UK might otherwise indicate, with the EU taking a technical, ‘detailed and granular’ forward-looking approach to equivalence and regulatory divergence, while the UK remains focused on outcomes-based assessments through determinations ‘about here and now … based on the self-evident symmetry’ between the UK and EU.
“The EU has not yet finished its equivalence assessments, and has expressed concern about the UK’s plans for its future regulatory framework and the degree of divergence from the EU regime this might entail. It is likely that the Commission will continue its assessments well into 2021.”
A senior member of the UK’s Brexit negotiating team maintained today that progress could be made in this area within the coming few months.
“The best thing is if we understand each other and understand what underpins equivalence decisions when they’re going to be taken,” they said.
“We believe its a meaningful commitment and we expect it to move forward quite quickly.”
Almost all major UK-based banks have made plans on the basis that the UK will lose its current EU market access next year.
This has seen firms set up bases in major EU financial capitals, such as Paris and Frankfurt.
Accounting firm EY estimates that more than £1 trillion of assets in the sector has moved from London to the EU since 2016.