U.K. Edges Closer Toward Limited Brexit Finance Deal With EU

Britain and the European Union are inching closer to reaching a co-operation agreement on financial regulation by the end of this month in a step that could help give firms in the City of London more access to the single market.

The EU could grant the U.K. so-called partial regulatory equivalence for some financial products once the separate memorandum of understanding on financial regulation is reached, according to a person familiar with the negotiations.

While the two issues are formally separate, securing a common framework around certain financial services rules could help unlock some limited equivalence decisions allowing U.K. firms access to the wider EU market, said the person, who asked not be identified discussing private matters. The EU and Britain would retain their unilateral right to grant or retract those equivalence rulings.

U.K. Edges Closer Toward Limited Brexit Finance Deal With EU

The two sides have been negotiating a memorandum of understanding around regulatory cooperation on financial services since January. The latest draft now includes calls for both sides to keep each other informed about their taxation plans for the finance industry as well as efforts to combat money laundering and terrorist financing, according to a separate person familiar with the matter.

“We’re in a good place around the memorandum of understanding,” Mairead McGuinness, the bloc’s commissioner for financial services, said while speaking to a group of female journalists in Brussels on Wednesday.

The European Commission and the U.K. Treasury declined to comment on ongoing negotiations.

Northern Ireland

While the MOU talks are on track, continuing disagreements around Northern Ireland is escalating post-Brexit tensions, which could impact equivalence decisions, another EU official said this week. A dispute over vaccine supplies has also ramped up tensions between the two sides.

The MOU, which is expected to be agreed by the end of this month, calls for a joint forum for discussing regulations and sharing information and includes provision for informal consultations concerning decisions to adopt, suspend or withdraw equivalence.

That separate process of equivalence has been fractious so far. The U.K. has grown increasingly frustrated over the EU’s reluctance to grant the rulings that would enable London-based finance firms to operate in the bloc, while Brussels has fretted about the U.K.’s proposed reforms to its financial rulebook. The lack of agreement has put London’s decades-long dominance of European finance under threat.

McGuinness said at a conference Tuesday that decisions around equivalence will resume once a memorandum of understanding is in place. She stressed the process is separate and hinges on the U.K. aligning with the bloc’s rules.

“Once the regulatory cooperation framework is in place, we will resume the assessment of equivalence with the U.K. authorities,” she said. “But let me clear on two points: first, there cannot be equivalence with wide regulatory divergence. Second, we will grant equivalence only when it’s in the EU interest – just as the U.K. has made its own equivalence decisions in their own interest.”

Still, the possibility of limited equivalence echoes comments made last month by France’s Clement Beaune, junior minister for EU affairs.

“There will probably be partial equivalence, probably by the end of the semester,” Beaune said in a February interview, noting it would be “revocable, provisional, unilateral on the part of the EU.”

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