UK must wait for financial services decision

Bloc will not grant London’s request for matter to be resolved by June 30

The future of the United Kingdom’s world-class financial services sector, which is centered on the City of London, will hang in the balance for several more months after the European Union’s financial regulation chief said the bloc is in no hurry to find a deal to guarantee market access.

Valdis Dombrovskis, an executive vice-president of the European Commission, wrote to the UK’s chancellor of the exchequer, Rishi Sunak, saying he will not grant London’s request for the matter to be resolved by June 30.

The Financial Times, which has seen the letter, reported it says the bloc will not be bound by a timetable and plans instead to “be guided by how far Britain wants to deviate from EU rules”.

The letter was in response to correspondence from Sunak last month calling for the matter to be resolved speedily, and ideally by June 30.

The UK’s financial sector had previously had full access to the European markets but the situation could change after the nation, which left the bloc earlier this year, emerges from a transitional period at the end of December that maintains the status quo.

Sunak wrote “the UK and the EU should be able to conclude equivalence assessments swiftly” and argued that the fact that they currently have identical financial regulations should make the matter easy to resolve.

But, Dombrovskis, in his March 13 letter, said the only thing the EU is obliged to complete by June 30 is an assessment of the UK’s regulatory systems, not a full deal. He said there is no requirement for it to make “political decisions” by that date.

The Financial Times said the letter suggests the EU will peg the City of London’s future access to European markets to “equivalence” of the two systems.

Under the equivalence rule, the EU evaluates other nations’ standards and only grants access to its clearing, trading, and investment services markets if it deems they are as vigorous as its own.

The UK wants a regulatory framework that is not based on equivalence, because it believes equivalence would leave the EU in control. The nation also finds equivalence unattractive because the bloc can cancel access with only 30 days’ notice.

Mark Carney, the then governor of the Bank of England, said recently the UK must insist on being able to diverge from EU rules now that it is no longer a member of the bloc.

The issue of UK access to financial markets is likely to become a key part of talks between the two sides as they discuss their post-Brexit relationship and a possible future trade deal.

The Express newspaper described Dombrovskis’ letter as “a snub” and said the bloc intends to see how far Britain breaks away from EU rules before making a decision on financial markets access.

The paper said the City of London fears bankers will be blocked from conducting business in Europe after year’s end.

City AM noted that Dombrovskis said the bloc’s assessment of the UK’s financial services sector “will have to be forward-looking” and take into account “overall developments”.