Brexit leaves finance sector in limbo

The UK's financial services sector has been left in limbo despite the 11th-hour trade deal on goods struck between London and Brussels just before the end of the Brexit transition period on December 31.

David Sapsted

4 January 2021

Talks will begin shortly between the UK and EU to try to hammer out an equivalence deal by March. Even if such an agreement is possible, it is a far cry from the 'passporting' rights that have allowed the City unlimited access to European markets for almost a half-century.Additionally, Brussels will have the power to cancel any equivalence arrangement with just a month's notice if Britain is deemed to have strayed too far from the EU's regulatory regime for financial services.So far, the EU has granted the UK temporary equivalence in just two areas - for derivatives clearing houses and to settle Irish securities transactions.Josh Hardie, deputy director-general of the Confederation of British Industry (CBI), said that banks and other financial institutions were better prepared than most for a 'hard' Brexit because they had never expected much to come their way from any deal."They'll be concerned in two ways - does it support their client base, and is it a starting gun on sensible conversations on equivalence, on qualifications, on opening offices around Europe," he said. "All those things need to be wrapped up after the deal and really, really matter."Bob Wigley, executive chairman of the sector's trade body, UK Finance, said it was now important to build on the foundation of the trade deal on goods "by strengthening arrangements for future trade in financial services".The talks between London and Brussels on a financial services will be headed on the UK side by City Minister John Glen and Katharine Braddick, the Treasury's director-general of financial services.There have been suggestions that Britain could relax regulatory standards after Brexit to make the City more competitive internationally - a move dubbed by some as transforming London into 'Singapore-on-Thames'.

Mr Glen firmly rejects this and insists the UK financial services will adhere to the highest possible standards, although he accepts that Brexit has opened up the possibility for the sector "to do things differently in the future".But he told the Sunday Times: "The integrity and the reputation of London in financial services is not going to be enhanced by rapid deregulation or reckless short-termism."What we want is a model of structure and cooperation with the EU that allows us to maintain that stability and mutual market access."However, Mairead McGuinness, the EU's financial services chief, has warned that the UK's financial sector, which employs about 2.3 million people and accounts for ten per cent of GDP, will never again have the same access to the bloc, and has called on the EU to develop its own capital market to cut reliance on the City of London.The fact that financial services were not included in the last-minute trade deal between the UK and EU has been roundly criticised, not least by Theresa May, the former prime minister.Speaking in the House of Commons last week, she said that the failure of Boris Johnson's to get a post-Brexit financial services agreement was a massive blow to the UK economy.She said that, in her speech at the Mansion House in 2018, she laid out her ambitions for a post-Brexit agreement, including outline plans for a financial services deal that would be "truly ground breaking”.But she added: “It would have been but, sadly, it has not been achieved. We have a deal in trade which benefits the EU, but not a deal in services that would have benefited the UK.“The arrangement treaty is clear that future negotiation on these points is possible and I hope the government will go to the negotiations with alacrity and vigour, particularly on financial services.”