London loses to New York in draft EU monetary providers settlement

London loses to New York in draft EU financial services agreement

Friday, February 26, 2021 at 4:14 p.m

After an early draft of new rules on financial services equivalence, London would be worse off than rival New York in terms of relations with the EU.

The City of London’s financial industry would fare worse than New York under an early draft UK-EU Financial Services Cooperation Agreement.

An early draft of the memorandum of understanding (MoU), first seen by Reuters, has less substance than a deal the EU struck with the United States in 2016, industry officials said.

The UK financial services industry has been largely cut off from the EU, its largest customer, since the end of the Brexit transition period on December 31, as the sector is not covered by the UK-EU trade deal.

Trading in EU equities and derivatives, for example, has already left the UK for continental Europe.

Both sides commit to agreeing an MoU for regular, informal discussions on financial rules and market surveillance by the end of March.

“This is the start of a negotiation – the text proposed by the Commission is clearly more limited than the UK’s ambitions,” said Chris Bates, financial services lawyer at Clifford Chance.


Brussels can grant foreign financial firms direct market access if it believes its home market’s rules are as robust as the EU’s own standards, a system known as “equivalence”.

A person familiar with the UK’s negotiating position said the UK’s focus is on ensuring the MoU provides transparency and proper dialogue when it comes to adopting, suspending and withdrawing equivalence decisions.

Currently, the EU can theoretically revoke equivalence decisions with a notice period of just 30 days.

Under the US agreement with the EU, equivalence is treated as “outcomes-based”.

The UK has called for EU equivalence to also be outcome-based, which would ensure focus is on whether UK and EU financial rules lead to the same outcomes.

However, no outcome-based equivalence is mentioned in the draft memorandum between the EU and the UK.

The EU text is deliberately less ambitious than the US deal and does not even reflect the current depth of ties to bilateral MoUs already signed between individual regulators in the UK and the EU, a financial sector source said.

But industry officials also said that even the draft document now in circulation would be a start in restoring trust between the two sides.

“It is important to create a framework for a regulatory dialogue, even if there is little expected movement on new equivalence decisions in the foreseeable future,” Bates said.

The financial industry wants the UK to include a provision for industry consultations as part of the regulatory dialogue, the first source said.

“The MoU is more in line with what the city wants,” said a second financial sector source, adding that this could make little difference as the UK is likely to receive limited equivalence.

The European Commission declined to comment on the document. The British Treasury initially had no comment.

Brussels has already made it clear that even an agreed MoU will not automatically lead to more EU access for London’s financial industry beyond the time-limited permission to settle EU derivatives transactions.

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