The UK may have agreed a last-minute Brexit trade deal, but the wait continues for the fate of the financial services industry outside the European Union.
In fact, Prime Minister Boris Johnson conceded that it fell short in terms of the financial services sector although Chancellor of the Exchequer Rishi Sunak has sought to calm fears that the City will be hamstrung by a lack of progress on equivalence with the EU.
Overall, services comprise around 80% of the UK economy and they have largely been left out of the 1,246-page long agreement which is expected to be approved by Parliament tomorrow.
Speaking to journalists Sunak said the aim was to establish agreements on the system of equivalence, whereby UK banks and other financial institutions can trade, on a regulatory basis, as if they were still in the EU.
He added that this deal also provides comfort because there is a stable regulatory co-operative framework mentioned in the deal. “I think that will give people that reassurance that we will remain in close dialogue with our European partners when it comes to things like equivalence decisions,” he added
The chancellor said he hoped a planned memorandum of understanding on the issue between the UK and EU in the next few months could smooth over several obstacles. However, the memorandum would not have the same legal force as an international treaty.
The EU has made it clear that the UK will need to wait until after 1 January 2021 to learn what market access rights its financial services companies will have in future.
In an explanatory document on the trade deal, the European Commission noted that “a series of further clarifications will be needed [from Britain], in particular regarding how the UK will diverge from EU frameworks after 31 December.”
It said, “For these reasons, the Commission cannot finalise its assessment. . . and therefore, will not take decisions at this point in time. The assessments will continue.”
There were reports that the City could potentially lose €9bn in European stock trades a day since EU based customers will be unable to trade on markets based in the UK unless the European Commission formally recognises the country as having equivalent financial regulations
Equivalence has been a sticking point with EU officials seeking greater clarifications from the UK about its future to ensure that they would be aligned with European norms.