Bank of England Curbs Banker Hopes of Quick EU Market Access

Britain’s top banking regulator has told London-based executives to lower their expectations for a quick win on “equivalence,” which was once seen as key to securing cross-border business after Brexit.

Sam Woods, who runs the Bank of England’s Prudential Regulation Authority, emphasized to industry leaders last week that initial talks between Britain and the European Union are focused on setting ground rules for their rules diverging, rather than delivering a long-term deal on equivalence, people with knowledge of the call said. Both sides are working on a memorandum of understanding on financial regulation, which is due at the end of March.

John Glen, economic secretary to the Treasury, echoed Woods’ downbeat message on the call, according to the people, who asked not to be named discussing private information. Glen is leading the government team in talks with the EU over post-Brexit access for the financial services industry, which generates about 7% of the U.K.’s economic output and employs 1.1 million people.

A spokesman at the Bank of England declined to comment.

With finance largely ignored by the trade deal struck by the U.K. before Brexit took effect on Dec. 31, many facets of the sector saw another route to EU markets through equivalence. This process sees regulators on each side judge whether the other’s rules are robust enough, although there are no deadlines for the EU to assess the 28 areas of U.K. finance still outstanding.

The call made clear that the U.K. will drop some European rules in the aftermath of Brexit, which will affect how much access the EU will grant the industry, the people said. One participant, who asked not to be named discussing private information, described the mood of the call as pragmatic.

The message is the latest sign many City businesses will have their hopes for equivalence dashed. Bank of England Governor Andrew Bailey previously said in January that Britain can’t accept financial equivalence at “any price.”

Woods reiterated the view that the U.K. will return to a principles-based approach to setting rules and will no longer be a rule-taker from the EU, according to the people who recounted Woods’ remarks to Bloomberg News. This process is going to take many years, the people said.

Some executives on the call recognized that the U.K.’s relationship with the bloc will be similar to that of the U.S., which has less generous “third-country” rights to do business in the EU, the people said.

©2021 Bloomberg L.P.

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