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Boris Johnson has admitted that the Brexit trade deal did not meet his financial services ambitions, as Brussels noted that the City of London must wait until after January 1 to find out what market access it will have in the future.
The Johnson government intends to lay out its plans on how to use Britain’s new regulatory freedom to deviate from the bloc’s rules, including financial services, but has yet to provide details. The two sides’ new trade relationship will take effect on January 1, assuming the UK parliament approves the treaty next week and the EU approval processes run smoothly.
Johnson told the Sunday Telegraph that the 1,200-page treaty “may not go as far as we would like” in financial services. But the prime minister added that there were provisions for some parts of the service sector, including “access for lawyers, lawyers” and “good business for digital.”
Chancellor Rishi Sunak said on Sunday that the UK would seek to “do things a little differently” in financial services after leaving the single market, but added that he was hopeful that the two sides would work together.
“This agreement also provides peace of mind because there is a stable cooperative regulatory framework mentioned in the agreement,” he told reporters. “I think that will give people the assurance that we will continue to be in close dialogue with our European partners when it comes to things like equivalency decisions.”
But Brussels has made clear that the UK will have to wait until after January 1 to find out what market access rights its financial services companies will have in the future, warning that it will depend on how diverse Britain’s standards are. the European Union.
“A number of additional clarifications will be needed [from Britain], particularly with regard to how the UK will deviate from the EU frameworks after December 31, ”the European Commission said in an explanatory document on the trade deal issued on December 24.
“For these reasons, the Commission cannot finalize its assessment. . . and therefore will not make decisions at this time. The evaluations will continue, ”he said.
The EU and the UK have agreed that each other’s financial services market access decisions will be based on each party unilaterally declaring that the other party’s regulatory systems are “equivalent” to its own.
The equivalency system, which Brussels already uses with other financial centers outside the EU, does not cover all financial services and allows access rights to be withdrawn only 30 days in advance.
But Brussels’ refusal to make decisions now means the UK is ready to start its new relationship with the EU with fewer equivalency rights in place than other financial centers, such as New York and Singapore, meaning the UK will have to rely on of more limited access arrangements.
Britain granted EU rights in several areas in November, but Brussels has only made decisions on temporary rights in areas deemed vital for financial stability, such as European banks’ access to UK clearing houses.
Brussels will grant equivalence rights “when they are of interest to the EU,” the bloc said in its December 24 statement.
The UK had hoped to secure provisions in its trade agreement that would add more stability to the equivalence system. It wanted to at least replicate the provisions of the EU agreement with Japan, which provides for consultations and warnings before the equivalence is withdrawn.
But according to EU officials, this was rejected out of concern that the UK would make it as difficult as possible for Brussels to revoke the equivalence.
Instead, the two sides will hold talks in early 2021 with the aim of drafting a memorandum of understanding on future cooperation on financial services policy, with the aim of agreeing on a text by March. However, the memorandum would not have the same legal force as an international treaty.
“This deal was never going to do much in terms of access to the financial market,” said Sam Lowe of the Center for European Reform. “It is less than [what is] in the EU agreements between Canada and Japan ”, he added.
The British financial industry still expects a closer relationship with the EU in the future. After the deal was announced, Bob Wigley, chief executive officer of UK Finance trade body, said: “It will be important to build on the foundations of this trade deal by strengthening the deals for future trade in financial services.”
Johnson said the UK will seek to make the most of its regulatory freedom to develop other parts of the economy. “We cannot suddenly decide that we are free and then not decide how to exercise it. This government has a very clear agenda to unite and level up and spread opportunities throughout the country, “he said.
Additional reporting by Philip Stafford
