LONDON, February 26 (Reuters) – The City of London’s financial industry would be worse off than rival New York, according to a Reuters document, following an early draft of a UK-European Union financial services cooperation agreement.
The UK financial services industry has been largely cut off from the EU, its largest customer, since a Brexit transition period ended on December 31, as the sector is not covered by the UK-EU trade agreement.
Trading in EU stocks and derivatives, for example, has already left the UK for continental Europe.
Both sides undertake to agree on a Memorandum of Understanding (MoU) for regular, informal discussions on financial rules and market supervision by the end of March.
An early draft of this document, seen by Reuters, has less substance than an agreement the EU made with the United States in 2016, industry officials said.
“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, a financial services lawyer at Clifford Chance.
For example, the US deal states that the equivalency, a reference to the EU system of granting foreign financial firms direct market access, should be “results based”.
The UK has also called for EU equivalency to be results-based to ensure that the focus is on whether UK and EU financial rules lead to the same result.
Results-based equivalence is not mentioned in the draft EU-UK memorandum.
The EU text is deliberately more undemanding than the US deal and doesn’t even reflect the current depth of relations with bilateral MoUs that have already been signed between individual regulators in the UK and the EU, a financial sector source said
However, industry officials also said that even the draft document now circulating 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 are few expectations for new equivalency decisions in the near future,” said Bates.
The financial industry wants the UK to include a provision for consultation with industry as part of the regulatory dialogue, the first source said.
“The MoU is on the lighter side of what the city wants,” said a second source from the financial sector, adding that it might make little difference as the UK is likely to receive limited equivalence.
The European Commission did not want to comment on the document. The UK Treasury Department did not have an immediate response.
Brussels has already made it clear that even an agreed MoU does not automatically lead to more EU access for the London financial industry beyond the time-limited permission to clear EU derivatives transactions.
The EU executive meets with banks on Friday to ask how they can justify further derivatives clearing in London.
Bank of England Governor Andrew Bailey said this week the UK will oppose any EU attempt to get banks to move trillions of euros in derivatives clearing from the UK to the bloc.
Reporting by Huw Jones. Adaptation by Jane Merriman
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