Sunak Vows to Set London Free as EU Equivalence Hopes Die
Chancellor of the Exchequer Rishi Sunak suggested he has given up on securing the financial services equivalence deals he wanted with the European Union, declaring he will now make the most of the U.K.’s freedom to set its own rules.
“We are moving forward, continuing to cooperate on questions of global finance, but each as a sovereign jurisdiction with our own priorities,” Sunak told an audience of executives and young business leaders at his first annual Mansion House speech. “We now have the freedom to do things differently and better, and we intend to use it fully.”
Sunak’s comments come at a critical time for the U.K.’s financial services industry, which was largely excluded from the trade deal with the EU, and against a backdrop of tense relations between the two sides after Brexit.
The British government has pushed to be granted a series of so-called equivalence rulings to give wide-ranging access to the bloc, but that’s looking increasingly unlikely as the EU moves to bolster its own financial sector.
Sunak said the “ambition” to reach those equivalence deals “has not happened.” He told his audience that even as the U.K. makes changes, “I can equally reassure you, the EU will never have cause to deny the U.K. access because of poor regulatory standards.”
In a Bloomberg television interview after the speech, Sunak said the talks with the EU concluded some time ago. He said the U.K. is “always going to be constructive in that relationship and remain available to answer any questions that they might have.”
The City lost its crown this year as the top place in Europe to buy and sell shares, and the bloc is pressing firms to shift more trading and senior deal makers to EU locations.
While Sunak said the U.K. wouldn’t dilute its regulatory standards for financial services, his comments suggest the City will increasingly look for business outside the bloc.
On Thursday, Sunak’s Treasury published a document titled “A New Chapter for Financial Services” setting out his vision for the City after Brexit. The U.K. will look to strike new financial services agreements and deepen relationships with China, India and Brazil as it looks to attract investment by being an “open and global financial hub,” the document said.
He singled out China as a vital economy, ripe for deepening trade in financial services with, while being “eyes wide open” about the risks.
“Too often, the debate on China lacks nuance,” Sunak said. “China is both one of the most important economies in the world and a state with fundamentally different values to ours.”
A “mature and balanced relationship” with China should recognise the links between British and Chinese people and companies, he said, and realise “the potential of a fast-growing financial services market with total assets worth 40 trillion pounds ($55 trillion).”
Since leaving the EU, the U.K. has launched several reviews and consultations aimed at making Britain a more attractive destination for finance firms.
As well as announcing an overhaul of rules covering initial public offerings and fintech firms, the Treasury said it will start a consultation on Thursday on changing rules for share-trading and capital markets to make the London market more efficient. The government will also publish a consultation on rewriting rules for prospectuses to make it easier for firms to go public on U.K. markets.
Despite his fading hopes for equivalence, Sunak used his speech to press Brussels on the critical issue of allowing European firms access to London’s dominant clearinghouses for interest rate and and other derivatives.
Without an equivalence decision on clearing, trillions of euros of interest rate swaps would need to move to clearinghouses inside the bloc. Banks and trading firms have warned of increased costs from the rupture in markets.
“I see no reason of substance why the U.K. cannot or should not continue to provide clearing services for countries in the EU and around the world,” Sunak said. “The U.K. already has one of the world’s most robust regulatory regimes for central counterparties.”
In his Bloomberg interview, Sunak also said:
- The U.K. will “build” on the city’s strengths, “not rest on our laurels”
- A planned issue of green bonds later this year will be “probably the most ambitious green sovereign gilt issue of any major country in the world, it will certainly be the largest”
- The government’s decision to taper the state’s contribution to the furlough wage support program is “very reasonable.” Companies now pay “just 10%” of the wages of furloughed employees, he said. Previously they paid nothing.
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