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EU and UK negotiators have knuckled down to detailed negotiations on their future relationship, but one of Britain’s most economically important sectors is barely covered.
The UK financial services industry’s access to the European market will not be settled in the trade talks that began this week in Brussels.
The EU has consistently rebuffed attempts by successive British governments to do a deal that would preserve as much as possible of the City of London’s role as Europe’s financial supermarket.
Instead, the EU has successfully argued that the same system must apply as for other countries around the world: Brussels will unilaterally judge whether British regulations and financial supervision are robust, and decide on its own terms whether to grant access rights.
Those rights, known as equivalence decisions, allow Europe’s companies to use clearing houses and stock exchanges located outside the bloc. They also grant non-EU brokerages the right to offer trading services throughout the union. Around 40 different equivalence provisions are scattered through different EU financial services laws.
The UK has gradually come to accept that it will have to make do with the system. Brussels and London agreed last year to both aim to complete their respective unilateral assessments by June.
Trading platforms, brokers and others point out that the system is inherently unstable — the EU can withdraw equivalence rights at 30 days’ notice.
Brussels has shown its willingness to rescind them. Last year it repealed decisions covering rating agencies in several countries including Canada and allowed rights covering Swiss stock exchange trading to expire.
That has left Britain with the task of trying to inject some stability into the model.
The UK has called for “consultation and structured processes for the withdrawal of equivalence findings, to facilitate the enduring confidence which underpins trade in financial services”, but Brussels says that this undermines the EU’s sovereign rights.
UK chancellor Rishi Sunak wrote to EU financial regulation chief Valdis Dombrovskis last week to inform him that his staff were ready “to begin working with your team in a structured way so that we can both progress our assessments of each other”.
In a sense this is perfectly normal: in any equivalence process the EU needs information from the country it is vetting, such as explanations of how various rules are applied.
But the EU is wary of opening any back door to negotiations over how equivalence might work. In fact, it has every incentive to play hardball. Although equivalence is outside the scope of future relationship talks, it is a significant source of EU leverage in the negotiations.
Mr Sunak wants the EU to grant the access rights as quickly as possible. But Brussels is unlikely to be in any hurry to give the UK such a prize — especially while crucial EU interests, such as fishing rights in British waters, are unresolved.
Further reading
Rishi Sunak ready to end freeze on fuel duty in Budget
Chancellor Rishi Sunak will next week use his Budget to signal the end to a decade of freezes on fuel duty, as he announces measures intended to help Britain meet its climate change targets. As the first stage Mr Sunak will scrap the £2.4bn diesel subsidy for users of farming and construction vehicles. George Eustice, environment secretary, was booed by farmers last week after he failed to reassure them on standards for post-Brexit food imports and on post-Brexit subsidy levels. (George Parker and Sebastian Payne, FT)
High street lobby appeals for reform of business rates
The government urgently needs to reform a business rates system that is suffocating British high streets, according to letters sent to the chancellor ahead of the Budget next week by businesses and lobby groups, representing thousands of retailers, pubs and restaurants. (Daniel Thomas, FT)
Britain after Brexit The UK may now be outside the EU but can still play a pivotal role in global health, for example by making markets work better for the poor. (Center for Global Development)
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Overseas buyers of UK property face new surcharge of up to 3% (Jim Pickard and James Pickford, FT)
EU migration is falling, public attitudes are changing and the government isn’t listening (Heather Rolfe, The UK in a Changing Europe)
Hard numbers
Surge in housebuilding boosts UK construction
UK construction activity in February grew at its fastest pace in more than a year, driven by a rebound in housebuilding, as the decisive general election released pent-up demand before the coronavirus outbreak hit. Read more
