Britain and the European Union are getting closer to reaching a financial regulation cooperation agreement by the end of this month, a move that could help businesses in the City of London gain greater access to the internal market.
According to a person familiar with the negotiations, the EU could grant the UK the so-called partial regulatory equivalence for certain financial products once the separate Memorandum of Understanding on Financial Regulation has been reached.
While the two issues are formally separate, securing a common framework around certain financial services rules could help unlock some limited equivalence decisions that would allow UK companies to access the wider EU market, said the person who asked not to be identified when discussing private matters. The EU and Britain would retain their unilateral right to grant or withdraw those equivalence awards.
The two sides have been negotiating a memorandum of understanding on regulatory cooperation on financial services since January. The latest draft now includes calls for both sides to keep each other informed of their financial sector tax plans, as well as efforts to combat money laundering and terrorist financing, said a separate person familiar with the matter.
“We are in a good place around the Memorandum of Understanding,” Mairead McGuinness, the bloc’s financial services commissioner, said during a meeting with a group of journalists in Brussels on Wednesday.
The European Commission and the UK Treasury declined to comment on ongoing negotiations.
Northern Ireland
While MOU talks are on track, ongoing disagreements around Northern Ireland are leading to mounting post-Brexit tensions, which could affect equivalence decisions, another EU official said this week. Any dispute about it the supply of vaccines has also increased tensions between the two sides.
The MOU, expected to be adopted by the end of this month, calls for a joint forum for regulatory discussion and information sharing and includes provisions for informal consultation on decisions to establish, suspend or withdraw equivalence.
That separate process of equivalence has so far been awkward. The UK has become increasingly frustrated with the EU’s reluctance to grant the rulings that would allow London-based financial firms to operate in the bloc, while Brussels has been concerned about the UK’s proposed reforms of its financial rulebook. The lack of agreement has threatened the decades-long dominance of European finances in London.
Read more about equality
McGuinness said at a conference on Tuesday that equivalence decisions will resume once there is a memorandum of understanding. She stressed that the process is separate and depends on the UK abiding by the rules of the bloc.
“Once the regulatory cooperation framework is in place, we will resume the equivalence assessment with the UK authorities,” she said. “But let me be clear on two points: firstly, there cannot be equivalence with major differences in regulations. Second, we will only grant equivalence if it is in the best interest of the EU – just as the UK has made its own equivalence decisions in its own interest. “
Still, the possibility of limited equivalence echoes the comments made last month by French EU affairs minister Clement Beaune.
“There will likely be partial parity, probably by the end of the semester,” Beaune said in February interview, noting that it would be “revocable, provisionally, unilaterally on the part of the EU”.
– With help from Ian Wishart, Silla Brush and Aoife White