The UK is set for only a bare bones agreement in upcoming Brexit talks on the City of London’s future relationship with the EU, according to industry insiders close to the talks.
Treasury minister John Glen is set to lead post-Brexit talks with the EU this week to strike a “memorandum of understanding” that will guide future regulatory cooperation on financial services.
The UK wants these talks wrapped up by March.
Industry insiders close to the talks have told City A.M. that any agreement struck will only provide minimal access to EU markets at the absolute best and will more likely only set up a method for UK and EU regulators to swap information on decisions.
Boris Johnson’s Brexit trade deal does not include an EU-wide arrangement for financial services, with UK firms instead having to negotiate a patchwork of individual EU nations’ regulations.
This has forced major UK-based banks to move more than £1 trillion of assets and thousands of jobs to EU financial capitals to avoid disruption.
The only way the City of London can maintain its pre-Brexit access to the EU is if Brussels grants regulatory equivalence, however Brussels believes the UK is destined to diverge from its financial services regulations and has withheld the designation.
One source close to the crunch UK-EU financial services talks said the issue of equivalence will not even be touched by either side.
“There’s no evidence at all that three will be a joint management for equivalence decisions – these are a unilateral measure,” they said.
“What’s more likely is a transparency mechanism, which needs to acts as a platform for how we work together with the EU.”
Another source was slightly more optimistic and said there was a chance Brussels may grant EU-wide access to financial services “on the margins”.
They said this could mean securing access, for example, only to EU derivative markets and not to the wider range of more lucrative markets.
“It’s not going to be a huge equivalence deal – in the best case scenario it will be incredibly minimalistic,” they said.
“But there are good reasons for the UK to go above and beyond the agreement just being a talking shop.”
The UK decided in November to allow the EU to largely maintain its access to UK financial markets, however Brussels did not complete its equivalence assessments before the Brexit transition period ended last week.
Brussels did grant equivalence for UK clearing houses to continue operating, which was considered necessary to protect financial stability.
Miles Celic, chief executive of financial services lobby group The CityUK, said the upcoming UK-EU talks were vital even if equivalence was not on the table.
“There’s a strong relationship with the EU after working together for four decades and it’s important that there is a structure for information sharing and cooperation,” he said.
A Treasury spokesperson said: “The UK and EU have agreed, in a joint declaration, to establish structured regulatory cooperation for financial services and to agree a MoU by March 2021 to establish a framework for this cooperation.
“This will support continued engagement and information sharing on issues of mutual interest to both parties, with the aim of establishing a durable and stable relationship between autonomous jurisdictions.”
The European Commission was contacted for comment.