UK and EU close in on deal for post-Brexit financial regulation

A LONG-AWAITED agreement between the UK and the European Union (EU) on the future of financial services could be signed off by European officials as soon as June, said people familiar with the matter.

The memorandum of understanding (MOU) on how financial regulators in the UK and the EU interact and communicate post-Brexit was initially expected in 2021. 

It has since been stuck in limbo, first because of a dispute over fishing permits and then after the EU accused then-Prime Minister Boris Johnson of breaching international law.

Progress on the new agreement suggests that relations between the bloc and the UK are continuing to improve under Rishi Sunak’s premiership.

People familiar with EU thinking said the text of the document was likely to be presented to national experts from member states next week. It would be handed to the UK once signed in about a month’s time.

UK government and regulatory officials close to the process suggested that a final agreement could be reached by June.

A UK Treasury spokesperson declined to comment. A spokesperson for the EU Commission said in an e-mailed statement that the Commission was “ready to start work on the finalisation” of the MOU.

The UK has made little progress since leaving the EU in securing agreements for how its lucrative financial sector interacts with its largest trading partner.

Signing the agreement would be a significant sign of increased UK diplomacy on the matter, said a person familiar with the UK regulatory process, cautioning that there are still several matters to be agreed between the two parties.

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UK clearing houses have been granted “equivalence” – acknowledgment that UK and EU regulatory standards are roughly equal – only until 2025, putting a time limit on the ability of European banks and businesses to clear euro-denominated derivatives trades in London’s liquid markets.

If both the UK and the EU felt they were operating within a mutually beneficial framework, underpinned by the new arrangement, then regulators would find future cooperation and rule-setting much easier, the UK regulatory expert said.

Still, a person familiar with the EU Commission’s thinking emphasised that any agreement would not equate to equivalence or access to the single market, and that such a document would simply be a way to structure how regulators speak to one another.

That means any signing will likely be met by a shrug in large parts of the City of London. The European head of one Wall Street bank said it would not change the way they have been doing business since the UK formally withdrew from the EU at the start of 2020.

For Sunak, any agreement will be seen as a further incremental step in repairing relations with the EU, and will raise hopes that the UK could secure further wins in future.

The accord could smooth market access between the UK and EU, spurring officials either to seek further quick wins on financial services or to allow the memorandum to bed in as a sign of goodwill, the UK regulatory source said, adding that they were not familiar with the government’s future plans. BLOOMBERG