LONDON – The UK and the European Union have yet to find a solution for the financial services sector after Brexit, and recent data suggests that Brussels may have the upper hand in negotiations.
It has been a major topic of discussion following the UK’s vote to leave the European Union in 2016. The City of London, the UK’s business district, wants access to the European market as it represents a significant part of its business . On the other hand, the city is also an important source of financing for European companies.
However, Brexit has inevitably changed this relationship. By leaving the EU, the UK no longer has access to the free flow of people, goods and services in the EU and that affects the way financial services work.
European financial centers, rivals to London, have benefited in the weeks after the UK ended EU rules on December 31. The Dutch capital Amsterdam, for example, has registered a sharp increase in the number of transactions it books. A stretch of euro-dominated financial products has also been completed outside London.
“The shift in trading of shares in EU names from the UK to the Netherlands was certainly unprecedented in size, and the fact that it all happened overnight on January 4. But it was not unpredictable,” said David Howson, president of the pan-European stock exchange CBOE Europe, told CNBC’s “Squawk Box Europe” on Wednesday.
The EU and the UK agreed to work on their relationship with financial services in early 2021. However, the general view is that Europe will not recognize UK rules as equivalent to their own, which would limit the ability of UK based companies to trade more freely in the bloc.
“I don’t see any chance of an equivalence agreement,” said Howson.
“There is certainly no reason for the European Commission and ESMA (European Securities and Markets Authority) to look for equivalence given the share of trading that has now, as we said, has moved almost permanently to Europe,” he added .
Bank of England Governor Andrew Bailey said earlier this month that it would be a “mistake” for the EU to decide to block the city of London in any way.
“The EU has argued that it needs to better understand how the UK intends to change or amend the rules in the future. This is a standard the EU does not adhere to any other country,” Bailey said in a statement.
However, the EU argues that without understanding how the UK will proceed with financial regulation, it cannot recognize it as equivalent to its own regulation.