MNI: EU-UK Financial Services Deal To Be Narrow-EU Officials

The UK and the European Union will agree a Memorandum of Understanding on financial services cooperation in the coming weeks and months, but it will be years if ever before the City of London gains access to EU financial markets and the current exception made for clearing is unlikely to be extended when it expires, EU sources told MNI.

Now that the UK and EU have resolved frictions over the Northern Ireland Protocol, the MoU will set out the basis for regulatory cooperation in the same way as for any third country, including information sharing and how often the two sides meet. But it will not approach so-called EU “equivalence” status for specific UK financial services sectors.

One obstacle is the technical assessment and process involved in agreeing equivalence for each sector, but more important is the EU’s own political backdrop, which makes further market access for the City of London unlikely in the near term.

“Politically, why would EU states and the European Parliament want to give the London this advantage post-Brexit. What do we get out of it?” one official said, noting that Paris, Frankfurt, Milan and Dublin have benefitted from business leaking away from the UK.

CLEARING DEADLINE

The EU is expected to adopt a draft MoU in the next week or two, which is likely to be approved by EU states in the weeks following, bringing it into force within one or two months.

Regarding the one UK sector which has maintained market access for financial stability reasons, the official said that there would be no extension beyond the current deadline of 2025 and that the EU position remains one of building its own clearing capacity within the bloc.

But one industry source believes broader access for London’s financial services will come at some point -- maybe in 2025, if the UK elects a new and more pro-EU government. But the UK would still have to pay a high price.

“At the end of the day, the UK will have to pay for market access. It will not get it under the umbrella of ‘we are the biggest marketplace’.”

But he noted that “both sides need each other more in the new, changed geopolitical reality,” noting the UK’s reliable armed forces and permanent UN Security Council seat.