City breathes sigh of relief: Draft MoU on post Brexit UK-EU financial services welcomed
Figures in the City seemed to breathe a sigh of relief following the publication of a draft memorandum of understanding (MoU) on financial services between the UK and EU last week.
Released last Friday, the agreement commits the two to “jointly endeavour to pursue a robust and ambitious bilateral regulatory cooperation in the area of financial services”.
Figures in the City were relieved the deal had finally been agreed, hoping that it would signal further improvements in the UK’s relationship with the EU.
Nicola Watkinson, managing director at TheCityUK said “the MoU on financial services has been a long time coming and this progress is another positive step forward in building relations between the UK and the EU.”
Watkinson hoped the agreement would provide a mechanism for engaging industry on discussion and “look(ed) forward to further progress being made”.
Angus Canvin, director of international affairs at UK Finance agreed that last week’s announcements represented a “positive step”.
“The MoU, once in effect, is an important early step towards a better situation for financial services firms in the UK that do business in the EU. We think it’s important that both parties work together to support mutually beneficial cross-border financial services,” Canvin said.
How will the MoU work
Brexit imposed significant constraints on the City’s access to the single market. While the EU agreed to formalise cooperation between regulators, this was put on hold for the two years following longstanding disagreements between the two, particularly over Northern Ireland.
However, after these issues were resolved by the Windsor Framework, more progress could be made on issues such as regulation of financial services.
The draft agreement outlines that Britain and the EU have “a shared objective of preserving financial stability, market integrity, and the protection of investors and consumers”, which needed to be reassessed when the UK left the EU, and stopped being subject to its regulations.
Amongst other provisions, the draft MoU proposes the establishment of a joint EU-UK Financial Regulatory Forum to represent the joint views of the UK and EU commission.
Engagement – not integration
Despite the progress, some experts pointed out that the deal would be unable to replace the UK’s previous relationship with the EU.
Macfarlane’s Michael Sholem acknowledged that it would be helpful for the industry to have a “formalised process” to air concerns and disputes.
However, the joint regulatory forum will probably only meet on a “semi-annual basis” and binding agreements will “require more intensive government to government negotiation,” Sholem said.
“This structure is clearly no substitute for the level of co-operation and integration that occurred when the UK was part of the EU,” he continued.
Mazars’ Anindya Ghosh Chowdury also expressed doubt that the MoU will necessarily bring the two regulatory regimes closer together.
“There were notable differences between the two jurisdictions”, he said, citing differences on ring-fencing and the senior manager’s regime.
“It is clear that the UK and EU can sometimes have different approaches to meeting the objective of preserving financial stability. As such, although the MoU is a significant step forward to harmonise bilateral ties on financial services, the effectiveness of the arrangement should be measured and reviewed with respectful scepticism,” Ghosh Chowdhury concluded.