How do things look when it comes to financial services post-Brexit?
At first glance, not good. Despite chancellor Rishi Sunak stating that the UK would grant the EU access to its markets, Brussels is claiming it will only allow the City access to European markets if it is “in the EU’s interests”.
With less than a week to go in the trade talks, this may feel that an acknowledgment of financial rules as “reciprocally equivalent” is further away than ever. However, this is Brexit, and if the last four years have taught us anything, it is that nothing is ever what it seems.
Equivalence is so logical to both sides that it is not impossible for some form of agreement to be struck at the last minute. The rhetoric coming out of Brussels in response to Sunak’s gesture last week simply does not add up. How can an equivalence agreement not be in the EU’s interests?
Since the global crash in 2008, Eurozone companies have been over-reliant on bank debt funding. Over a decade on, these same banks are still not financially strong enough to fund cash-hungry businesses from their own balance sheets. They have been — and still are — heavily reliant on global investors with risk appetite to invest.
This is where London’s expertise at financing both listed and private equity comes into play.
In addition, while it is of course important that equivalence can be achieved when it comes to the smooth selling of financial services to EU customers and vice versa, it is not the be all and end all. The buying and selling of assets is done based on where markets are located. It is all about looking at where an asset can be bought or sold in a market at the best possible price.
These markets tend to be located in jurisdictions with sound legal systems and prudent regulations — such as London.
The reality is that while equivalence is of course the most sensible outcome, it makes no difference to the location of the underlying markets where people trade. Some of the most active markets are in London regardless of the UK’s political links to Europe.
So despite the noises coming out of Brussels this week, there is still a decent chance that Europe will grant the City access to its markets eventually. A reduction in mutual trade in financial services between the UK and EU is not in either side’s interests come January 2021.
Main image credit: Getty