26 Jul 2019
Direct access for Britain’s financial sector to the European Union after Brexit is increasingly under threat as political will for an industry deal fades and the bloc toughens requirements for recognizing other countries’ financial rules.
The EU is the City’s biggest customer, with financial services exports worth 26 billion pounds in 2017. Ensuring the UK’s large financial industry could still operate across the bloc from its home base was one of the central issues during early divorce talks after Britain voted to leave the EU in June 2016.
But as the EU and Britain quashed the industry’s hopes of largely unfettered access to the bloc, banks began moving around a trillion pounds of assets from London to new EU hubs, while trading worth around 240 billion euros a day in euro zone government bonds has moved to Milan and Amsterdam.
Despite the preparations, maintaining direct access would mean the sector could continue to leverage cross-border efficiencies of scale and avoid passing on the costs to customers of maintaining two hubs, one in Britain, the other in the EU.
Any access would be through “equivalence” – whereby the EU deems Britain’s rules to be aligned closely enough to its own – but Brexit has already prompted Brussels to toughen up equivalence conditions.
“You can ask for whatever you like in equivalence, but the chance of the EU going down that line is zero until they decide they need it,” said Sharon Bowles, a former chair of the European Parliament’s economic affairs committee.
Equivalence is used by firms much further afield in the United States, Singapore and Japan, but was never designed for a whole global financial center on the EU’s doorstep and does not cover core financial activities like banking.
The preparations already undertaken by financial institutions in the wake of the political impasse have to some degree lessened the need for alignment and some are keen to break free of what they consider restrictive rules.
UK insurance firms, for example, have long complained that EU capital rules are too inflexible, but despite pressure from lawmakers, the Bank of England has been loathe to make any unilateral changes while in the bloc.
By Huw Jones, Reuters, 23 July 2019
Read more at Reuters
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