Lord David Frost has said City of London firms need to “get on and do its own thing” post-Brexit as he signals that equivalence is unlikely.
Boris Johnson’s UK-EU relations minister also told a House of Lords committee today that Brussels will continue to take decisions on equivalence that are “in their interest”.
UK financial firms lost their wide ranging access to EU markets when the Brexit transition period ended on 31 December and now have to navigate a patchwork of regulations from individual member states.
The only way the City of London can regain its pre-Brexit access to the EU is if Brussels unilaterally grants regulatory equivalence, however the bloc believes the UK is destined to diverge from its financial services regulations and has withheld the designation.
London and Brussels have also provisionally agreed to a Memorandum of Understanding that will open official channels of communication between financial services regulators in the UK and EU.
Former chancellor Lord Norman Lamont asked Frost at a Lords committee meeting about progress on equivalence and added that “increasingly in the financial services sector people are not looking with great hope for equivalence”.
Frost said the EU was still mulling over the thousands of pages of equivalence assessments sent by the UK almost a year ago.
“We’re still waiting for the EU to complete those processes,” he said.
“Obviously the City needs to get on and do its own thing pending that and increasingly that is what has happened.”
The EU did give the UK temporary equivalence status for two types of clearing houses as they were deemed as crucial to the stability of the financial system.
The equivalence decision on one of them is due to expire in June, which Frost said would do damage to the UK and EU if not renewed.
“I would imagine, or I’m clear, the EU took those [two] decisions on equivalence by the end of last year because they thought it was in their interest,” he said.
“When it comes to renewing them I guess they will look at it in the same way.”
The majority of City financial services firms expected the UK to not get equivalence and have moved more than £1 trillion of assets and thousands of jobs from London to EU capitals since 2016 in preparation.
Trading activity in the month after the Brexit transition period ended showed a wave of share trading moved from London to Amsterdam, leading some to speculate the UK could eventually lose its status as Europe’s financial capital.
Others are more bullish and say London is the only place in Europe that has the infrastructure required for large deals.
Bank of England governor Andrew Bailey has also said that getting equivalence from the EU would not be worth it if it means the UK is a rule taker on financial services regulations.