The UK and EU must rebuild trust “at a political level” before they can reach an agreement on the City’s future regulatory relationship with the bloc, according to a new report.
Britain is seeking “comprehensive” or “permanent” equivalence with the bloc to ensure the City maintains permanent access to EU markets, but the EU has rebuffed this, saying it will not negotiate “open-ended” or “ongoing” equivalence.
The report also said that the most likely outcome of the negotiations is that Britain will be granted a “selective equivalence” covering a few key sectors such as stock exchanges and clearing houses, rather than the “comprehensive” agreement sought by the government.
Under current provisions, the EU can grant equivalence to countries it deems to have a strict enough regulatory framework, but can also unilaterally withdraw this with 30 days’ notice.
Any agreement reached between the UK and EU on equivalence would be dependent on the pair first establishing a “significant” degree of trust because of this, a report published today by think tank New Financial said.
“There is a level of trust at the regulatory level… but in the wider political environment I don’t think there is trust,” said New Financial senior analyst Panagiotis Asimakopoulos, who co-authored the report.
This trust is crucial, the report said, “because this cooperation by definition will take place outside of existing formal EU channels… where the UK will no longer have a seat at the table.”
“There is a limit to the trust that regulators and supervisors can build with each other when the key questions are decided at a political level,” it continued.
Financial services have raised concerns that their access to the bloc could be used as a bargaining chip in wider trade negotiations, limiting their future access to the bloc’s markets.
Of the 39 different equivalence regimes currently in place, most do not include access to EU markets, and none cover a country’s entire supervisory and regulatory framework.
“There is nothing like a comprehensive permanent regime” currently in existence, said Asimakopoulos. “People think that equivalence will solve everything and make everything as it was before,” but this is not the case, he added.