Three months after Britain left the EU, London reached a co-operation agreement on financial services with Brussels on Friday, but despite this first step, rivalries between the two sides remain.
The Memorandum of Understanding, which is still to be signed, will “create the framework for voluntary legislative cooperation” and set up a regulatory forum which “will serve as a platform to facilitate dialogue on financial services”, said the UK Treasury.
London and Brussels reached a final gas trade agreement on 24 December, just days before Britain would leave Europe’s single market and customs union on 1 January.
But the culmination of months of tense talks led both sides to agree to push back a decision on the financial sector and leave it in limbo.
International banks took an early step to prepare for the worst and the possibility of a “hard Brexit” by strengthening their European operations, which enabled a smooth transition when Britain left the customs union.
“The relationship is more competition than collaboration right now,” Sarah Hall, a professor of economic geography at the University of Nottingham, told AFP.
Although the details of the agreement have not yet been published, the full text of the memorandum should be published when it has been signed before the end of March, as agreed by the United Kingdom and the European Union.
The city does not expect an ambitious agreement between the two sides, given the financial services sector for the UK economy: it contributes around seven per cent of GDP and 10 per cent of the country’s tax revenue of £ 76 billion.
The memorandum is also not expected to address the important issue of equivalence, which will enable London-based companies to operate on the European continent.
In order for conformity to be agreed, it must be granted in 40 separate areas of activity and these can easily be revoked.
At present, the EU has granted only two to the UK, while London has granted EU equivalence in 17 areas. One of these allows, for example, European investors to use UK clearing houses and another applies to securities deposits.
Brussels’ attitude towards London in this respect has been less favorable than the 21 equivalents it has with the United States, the 19 it has with Japan and its 15 with Singapore.
Miles Celic, CEO of TheCityUK, which represents financial services companies, said that “ensuring EU equivalence determinations is mutually beneficial, especially when economies are trying to recover from the pandemic”.
He added in a recent statement that the delay already had “the unintended consequence of driving more European financial activity to non-European centers, such as New York”.
Hall said that Brussels had taken a hard line because the EU feared that Britain would deviate from European rules.
“It seems clear that both the UK and the EU are currently working to support their own financial services sectors,” she explained.
As an indication of the tensions between the two sides, the Governor of the Bank of England Andrew Bailey has not hesitated to criticize the EU’s demands on several occasions.
The loss of EEA cross-border financial passports, which enabled UK companies to offer their services across Europe, has begun to affect the UK financial sector.
Amsterdam has surpassed the British capital in European stock trading. About six billion euros left London for the EU on the first day of trade after Britain left the single market.
It is still difficult to assess the damage to the UK, especially as the pandemic has blurred economic results.
However, the UK is already planning its feedback with a relaxation of stock market rules aimed at attracting start-ups, leading to the fee for green financing and pivoting towards markets in Asia, while other measures to attract investors may be dropped.