The United Kingdom and European Union are set to begin talks on how to regulate the financial services sector now that Brexit has taken effect.
According to Bloomberg, the financial services sector was largely overlooked in the Brexit deal that was struck in late December, with the U.K. and EU agreeing to draft a Memorandum of Understanding to establish a regulatory framework by March. The parties issued a joint declaration on the matter in December.
Jamie Davis, a spokesman for U.K. Prime Minister Boris Johnson, told reporters on Tuesday (Jan. 12) that U.K. officials are prepared to start negotiations this coming week about regulating the financial services. The U.K.’s Chancellor of the Exchequer Rishi Sunak and Economic Secretary to the Treasury John Glen are both expected to be involved.
“We want to preserve financial stability, market integrity and the protection of investors and consumers,” said Davies, Bloomberg reported. “We did push for a broader agreement on financial services as part of the negotiations, and the Treasury will continue that work with the commission beginning this week.”
The U.K. is particularly interested in striking an agreement with the EU over “equivalence” decisions, which allow financial institutions to conduct business seamlessly across borders, per the news outlet. The U.K. issued its own equivalence rulings last year to allow EU financial services companies to keep operating in the country and regards such rulings as key to maintaining its dominance in the sector.
Bloomberg noted, however, that the EU is not especially interested in maintaining London’s dominance in financial services, preferring that the sector’s infrastructure be less centralized. Until more equivalence decisions are made, it is still unclear how much of the industry can remain in the U.K.
In late December, The Wall Street Journal reported the new Brexit deal will see a more distant relationship between the U.K. and EU, with both sides trading free of tariff and with new bureaucracy for importers and exporters. There won’t be a free flow of workers between the two economies anymore, and there will be less trade, with London’s financial sector having less access to European markets.
Britain will now be able to depart from EU regulations more, and be able to sign free-trade deals with countries like the U.S. In addition, if the EU lifts regulatory standards in the future while the U.K. doesn’t, the EU could impose penalties on some U.K. sectors if there’s proof of economic harm.
Meanwhile, the U.K. has seen a mass exodus of FinTechs to the EU, PYMNTS reports, with Dublin, Luxembourg and Paris being the top destinations.
The ongoing pandemic is also threatening London’s financial services industry.
Last week, the U.K.’s Financial Conduct Authority (FCA) cautioned that the results of its recent pandemic resiliency survey indicate some 4,000 companies doing business in the financial services sector lack resiliency and could collapse.
“We are in an unprecedented — and rapidly evolving — situation. This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms,” Executive Director of Consumers and Competition Sheldon Mills said in a Jan. 7 press release. “A market downturn driven by the pandemic risks significant numbers of firms failing.”