City figures have this week called for the UK and EU not to overlook financial services in the final Brexit trade agreement.
The UK published its draft Brexit trade agreement this week which called for the UK and EU for treatment “no less favourable than that it accords to its own like financial services and like financial service suppliers”.
This is in contrast to the EU’s approach which lawyers at Latham & Watkins said in a client briefing is to have “limited market access commitments, notably on cross-border supply of financial services. In addition, even where there is market access, the EU will continue to apply its host state-rules to incoming providers.”
While the further details provided by the UK on its vision for financial services have been broadly welcomed, there are still worries from some in the City that the final deal could neglect the financial services sector.
City of London Corporation policy chair Catherine McGuinness said it is “vital that any future framework agreement recognises the enormous contribution of the services sector, accounting for almost 80 per cent of the UK economy”.
McGuiness said she was “encouraged to see further detail from the government on its desire to secure close regulatory and supervisory cooperation on financial services with the EU”.
However, she called for the two sides to come together over equivalence to ensure continued access to each other’s markets for financial services firms once the Brexit transition period ends.
“We urge the UK and EU to get around the ‘virtual’ table and put in place the necessary equivalence and determinations by early autumn so that the industry has the certainty that it needs,” she said.
Barney Reynolds, a financial services partner at law firm Shearman & Sterling, said: “The problem is they have not really been aspirational in services to the extent they might need to be. That’s probably because they don’t want to be a demandeur to the EU right now.”
Reynolds called for the two sides to come to an agreement on so-called enhanced equivalence in the final trade deal.
“We haven’t asked for enhanced equivalence – I personally think we should insist on enhanced equivalence as part of the final arrangements, once proper, sovereign-to-sovereign negotiations commence,” he said.
Reynolds described enhanced equivalence as “tweaks to the EU’s equivalence laws which take us to a similar place as the passport, but which do so on the basis of our being a third country with our own laws.
“Direct access to EU customers would be permitted, whereby UK firms sell to them in compliance only with UK laws, so long as our laws meet equivalent hgh level standards.
“We’d get the ability to sell cross-border into the EU without being regulated twice (i.e. we would not be subject to EU rules). The EU would get the same in reverse and would benefit from our regulators’ ability to mitigate their reckless levels of unmanaged Eurozone risk.”
He adds: “I just don’t want them to forget the City and financial services.”
Gulf between EU and UK on financial services Brexit deal
The next round of negotiations, which start on 1 June, look set to be difficult.
The UK’s chief negotiator David Frost said after the last round of talks: “We made very little progress towards agreement on the most significant outstanding issues between us.”
On financial services, the two sides have taken starkly different approaches in their draft trade agreements.
The Latham briefing said “the two sides could not be further apart” on financial services.
“The EU intends to retain the existing architecture and restrictions of financial services, and contends that any market access should be granted by either side unilaterally in its own interests.
“The UK proposes establishing a unique legal and governance arrangement and allowing mutual free market access under that arrangement. Reaching an obvious compromise from these extreme starting positions likely will be difficult,” the briefing said.