Post-Brexit Deal on Financial Rules

Britain and the European Union (EU) took their first step since Brexit to cooperate on financial services, agreeing on a new forum to discuss market regulation. The move could help finance firms in London to eventually win back some access to the single market they lost when the U.K. left the EU.

The two sides have agreed to a memorandum of understanding (MOU) on financial services, the U.K. Treasury and European Commission said in separate statements Friday. The content and substance of the deal has been finalized, and the two sides are now working on the formal process of validation.

“Technical discussions on the text” have now been concluded, the U.K. Treasury statement said, adding that “formal steps need to be undertaken on both sides before the MOU can be signed, but it is expected that this can be done expeditiously.”

The memorandum sets out a framework for regulatory cooperation and a joint forum for discussing rules and procedures as well as the sharing of information. It is separate from any decision on equivalence, a series of unilateral rulings that each side can make that offer market access to financial services.

“The MOU will establish the Joint U.K.–EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues,” a spokesperson for the European Commission said. “On the EU side, the MOU will take the form of a Union non-binding instrument, which requires endorsement by the Council.”

”It’s a positive for sure,” said Jordan Rochester, currency strategist at Nomura International Plc. “The market had come to expect further standoffs on financial regulation, and the details still need to be sorted out.”

London Limbo

Since Brexit took effect at the beginning of 2021, London-based financial firms have been largely unable to operate in the bloc, forcing banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc. to move billions of dollars in assets and thousands of staff to the continent. The trade agreement signed by the two sides last year largely sidelined the finance industry, and the EU has said since that it’s in no rush to grant “equivalence” findings that would restore British firms’ trading rights.

Brussels has fretted that the U.K. is veering from EU standards, taking it further away from “equivalent” status. The lack of agreement has put London’s decades-long dominance of European finance under threat and left many U.K.-based finance firms that wish to do business inside the EU saddled—perhaps indefinitely—with the added complexity and cost of supporting operations in both the U.K. and the bloc.

While the MOU process is entirely separate from equivalence, some EU officials have said that 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.

“We know we would want to make progress after the MOU around some issues,” Mairead McGuinness, the bloc’s commissioner for financial services, told journalists this month while warning that divergence would hamper any equivalence rulings.

An earlier draft of the agreement seen by Bloomberg says the U.K. Chancellor of the Exchequer and the European Commission’s top financial services official should meet twice a year to discuss regulation. It also says the forum’s activities include:

• informal consultations on decisions to adopt, suspend, or withdraw equivalence;
• keeping the two sides informed on supervision and enforcement of rules; and
• sharing information and analysis about the financial industry, including on taxation and efforts to fight money laundering.

—With assistance from Alex Morales, Greg Ritchie, Silla Brush & Aoife White.

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