The European Union will strive for close co-operation with Britain on financial services, but London cannot expect “equivalence-based” access to the EU financial market if it diverges widely on rules, according to the EU Financial Services Commissioner Mairead McGuinness.
Speaking at an industry forum, McGuinness said equivalence decisions would only be made after the signing of a memorandum of understand between the two sides by the end of March.
She added, “We aim to set up a flexible, non-binding framework, similar to the model we have with the US, a voluntary structure to compare regulatory initiatives, exchange views on international developments, and discuss equivalence related issues.”
In other words, the UK will not be granted blanket equivalence as many in the financial services sector had hoped.
“The EU will take into account the UK’s regulatory intentions on a case-by-case basis and above all looking towards our own interests, “said McGuinness.
Separately, in his annual Mansion House speech to the City of London, Bank of England Governor Andrew Bailey warned that the EU could be planning to cut the UK off from its financial markets.
He said it would be “unrealistic” and “dangerous” for the UK to stick to EU banking rules after Brexit. However, he added that proposals to move to a low-regulation model would not benefit the UK’s financial service sector.vices sector.
Bailey said the bloc was demanding more of London than of other trade partners. “There cannot be equivalence and wide divergence,” he added.
In the meantime, the City of London is already feeling the impact of Brexit. Although the numbers may be small, the direction of travel is clear.
Stock exchanges in Amsterdam traded shares worth €9.2 bn a day in January, beating the €8.6 bn traded in London, according to data from the Cboe exchange. Meanwhile, figures from IHS Markit revealed that London’s share of trading in euro-denominated interest rate swaps dropped from nearly 40% of the market last July to below 10% in January.
IHS found that EU venues accounted for nearly a quarter of the euro swaps market in January, compared to less than 10% in July last year while trading on US marketplaces more than doubled to 20%.
The data showed the switch in swaps trading was mainly due to behavioural changes among interdealer brokers, which privately negotiate deals between banks. The derivatives are often traded on venues run by companies like TP ICAP and Tradition.