Finance

Downing Street calls on EU to resolve Brexit issues as financial services deal hangs in balance

The British prime minister’s office has called on European Union officials to use the Brexit trade deal to resolve issues arising from the UK’s European trading bloc split, instead of issuing threats.

The comments follow reports that France had sought to delay formal approval of a post-Brexit regulatory cooperation agreement for financial services amid a spat with the UK over post-Brexit fishing rights.

“This is another example of the EU issuing threats at any sign of difficulty instead of using the mechanisms of our new treaty to solve problems,” a spokesman for Boris Johnson told reporters on 13 May.

“We’ve always been clear that an agreement on financial services is in the best interest of both sides,” the spokesman added.

A memorandum of understanding agreed between the UK and European trading bloc in late March set out the terms for future financial services interaction between the two jurisdictions.

The MoU must be signed off by all 27 EU member states before it can be implemented, but that process has yet to start.

French efforts to delay the process, first reported by Bloomberg, are the latest example of souring relations between the UK and France as a row over the post-Brexit fishing rights of French fisherman has escalated tensions between the two nations.

In April, France threatened to withhold authorisations for the financial sector if the UK did not respect post-Brexit agreements on fishing.

The trade deal announced just days before the UK officially transitioned into Brexit on 31 December 2020 largely ignored the UK’s finance sector. However, fishing and access to European waters were key points of contention in the final months of the negotiations, much to the City’s chagrin.

The government initially vowed to secure an agreement that would lower Brexit-related hurdles to trading, investment banking and asset management, and UK policymakers indicated they would push for a Brexit deal for finance that hinged on the concept of ‘equivalence’.

But frustrations have since mounted over the EU’s reluctance to grant the UK equivalent financial services access to the trading bloc.

The City of London has since been striving to establish itself as an attractive financial hub post-Brexit despite having lost its access to European markets, and there is no sign of an equivalence deal so far.

The four-page financial services MoU, agreed on 27 March, mirrors the existing framework between the EU and the US, and includes a commitment for regulators on both sides to meet regularly to discuss future rule-making and share information.

It included an agreement for officials from the EU and UK to hold “dialogue” on “autonomous decisions to adopt, suspend or withdraw equivalence relevant to one or the other side” and to hold “exchanges of views on the respective policies, rules and processes concerning deference regimes, such as equivalence”, referring to the EU regulatory process for granting market access to firms if the country’s financial rules are deemed similar to its own.

It fell short of City executives’ hopes for a Brexit deal for financial services which included greater access to European markets for UK-based firms, but it was hoped the agreement would prompt EU policymakers to eventually grant equivalent financial services access to the trading bloc.

To contact the author of this story with feedback or news, email Lucy McNulty

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