London Finance Firms Face Long Wait for EU to Reopen Its Doors

The European Union is in no rush to reopen its doors to the British finance industry, dashing any remaining hopes that the Brexit trade deal would unlock market access for banks and other finance firms.

Officials from the 27-nation bloc stressed on Monday that the EU won’t hasten its assessment of the U.K.’s plans for regulating its financial sector and underlined that granting market access remains a unilateral decision that’s not up for negotiation.

The industry was mostly left out of the free-trade agreement that the two sides struck late last year. Relations now hinge on a process known as equivalence, where each side grants market access if the other’s rules are seen as tough enough. Until that’s settled, U.K. firms will have to rely on bases in Frankfurt, Paris and other cities across the EU to keep doing business with clients there.

“Equivalence requires a certain degree of alignment. But that degree of alignment needs to be discussed and agreed area by area,” Almoro Rubin de Cervin, who’s in charge of international relations at the European Commission’s department for financial services, told a European Parliament committee on Monday. “Equivalence as a process will take a while.”

While the U.K. started life outside the bloc on Jan. 1 with an almost identical set of rules, officials are contemplating changes in a number of areas. Bank of England Governor Andrew Bailey has said that the U.K. shouldn’t be tied to EU standards as the price for winning market access.

As a first step, the U.K. and the EU are working on ground rules for cooperation in financial services by March. But officials in London shouldn’t confuse this with a negotiation on market access, Rubin de Cervin warned, adding that the planned memorandum of understanding won’t constrain the EU in its decision making.

If the distance between the two sides isn’t significant, the deadline to reach an accord is “definitely achievable,” according to the official. “But if the U.K. would come to the table on the MOU with excessive demands, for instance in terms of constraints on decision making, then it would take longer.”

Ever since the U.K. voted to leave, the EU has taken a tough line on financial services, disregarding several proposals on how to enhance cooperation beyond its standard framework for dealing with firms outside the bloc.

“There is no parallel negotiation on financial services. The deal is done,” France’s Junior Minister for EU Affairs, Clement Beaune, said in a a Bloomberg TV interview on Monday. “There is a unilateral framework of equivalence in the hands of the EU. Now we will be looking, it’s our analysis to be done, at the financial regulations of the U.K. markets to see whether we think they are protective enough, regulated enough, to give on an ad-hoc, unilateral basis access or not to our market.”

The U.K. lost about 6 billion euros in daily share trading on the first business day after the Brexit transition period, adding impetus to those voices demanding to ease rules and help the City get a competitive edge over European rivals. One such move came when U.K. Treasury said it plans to allow trading in Swiss shares, reversing an EU ban on the activity.

The EU is also mulling changes to its rules, making assessments of alignment more complex. “To some extent -- and that’s part of the difficulties going forward -- we will be two moving targets,” Rubin de Cervin said.

©2021 Bloomberg L.P.

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