Brexit Finance Talks Get Technical With Broader Progress Elusive

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As with many meetings these days, the U.K. and EU’s latest negotiations on financial services began with a video conference call Friday. Unlike the high-profile gatherings that kicked off the earlier trade deal, the opening discussions on how to regulate the trillions of dollars of cross-border financial flows were a low-key affair.

That’s by design. The ambition for this set of talks is limited: reach a memorandum of understanding around regulatory cooperation between the two sides on financial services by March.

“The MOU isn’t trivial, but it’s not in itself a new deal for financial services, it’s simply a mechanism that codifies how regulators communicate and speak to each other,” said Conor Lawlor, director of Brexit at UK Finance, the main lobby group for the British financial services industry, giving evidence to U.K. lawmakers last week.

That’s a blow for those hoping the discussions will unlock the far bigger prize of an equivalence agreement. It is this separate -- and so far stymied -- process that would give U.K. firms a type of market access to the bloc, albeit in a more limited form than the rights under EU membership access which has turbocharged the City of London’s growth in recent decades.

“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 Jan. 11. “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.”

Equivalence Deals

British regulators have granted a number of equivalence deals to the EU, but so far their European counterparts have assented to just two in return, meaning the U.K. has fewer deals than Bermuda, the tiny British overseas territory in the North Atlantic.

While equivalence remains stalled, some details on the MOU discussions have started to emerge. For the U.K., both Chancellor of the Exchequer Rishi Sunak, and his junior minister, John Glen, who has responsibility for financial services, will be involved at some stage, as well as a senior civil servant.

But the negotiations are likely to be limited and technical. The joint declaration signed last month simply describes the MOU as a “framework for cooperation.”

Still, in the fractious world of Brexit, discussions of any kind can be taken as a positive. The U.K. approach to regulatory cooperation offers a sliver of optimism for Britain’s embattled bankers. The involvement of Glen and Sunak underlines the U.K. authorities renewed focus on finance, which was largely sidelined in favor of trade talks dominated by trucks and trawlers.

And if the MOU establishes the outline for a good working relationship, some expect other breakthroughs to follow.

Barney Reynolds, global head of financial services at law firm Shearman & Sterling, told U.K. lawmakers that he expected the EU would eventually grant the U.K. broad access because of the bloc’s need for the specialists services provided by London.

But the initial negotiations won’t be easy.

“I think there will be a tussle in the first instance because I don’t think the EU are reconciled to the gravitational forces of financial business,” said Reynolds. “I think there will be a period where they’ll see what they can try and get. Whether they are all behind that I don’t know, because that policy driven by one or two states is at the cost of businesses and consumers across the EU.”

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