After years of negotiations, the UK and the European Union have finally signed a memorandum of understanding on financial services. The document was approved by Jeremy Hunt, the UK Chancellor, and Mairead McGuinness, the European Commissioner, during a visit to Brussels. Hunt said the agreement was an “important turning point” and that “cooperation is essential”. The deal sets up a forum for dialogue between the two sides, but EU officials have stressed that it does not grant companies access to markets across borders, known as equivalence.
The UK’s financial services and related professional services sectors were worth £275bn in 2022, accounting for about 12% of the country’s economy. The memo had been expected in 2021, but was delayed due to a dispute over fishing permits and later because of the EU’s accusation that then-prime minister Boris Johnson had breached international law.
The agreement outlines how financial regulators will interact on a regular basis. The first meeting is scheduled for autumn. The parties will also be able to coordinate positions on issues ahead of G7, G20 and other international meetings, according to the UK Treasury. However, the deal does not grant companies access to markets across borders, known as equivalence. The EU has so far only granted limited equivalence to clearinghouses and has been pushing banks and other firms to conduct more business within the bloc to reduce its dependence on London.
The UK and EU’s financial markets are deeply interconnected, and building a constructive, voluntary relationship is of mutual benefit to both parties, Hunt said. The deal marks a moment of accord after years of wrangling over post-Brexit cooperation. The memo will set up a forum to facilitate dialogue, according to Daniel Ferrie, a spokesperson for the European Commission.
The agreement has been welcomed by the financial services industry on both sides of the Channel. However, some experts have warned that the deal falls short of what is needed to ensure the industry’s long-term success. The absence of equivalence means that UK-based firms will have to establish subsidiaries in the EU if they wish to continue serving clients in the bloc. This will increase costs and reduce efficiency, they say.
The agreement is a step in the right direction, but more needs to be done to ensure the financial services industry can thrive in a post-Brexit world. The UK and EU must work together to find a way to grant companies access to markets across borders, while also ensuring that the bloc’s financial system is not too dependent on London. Only then can the industry truly flourish.
