The UK’s financial services community may have to wait until after the end of 2020 to know whether it will gain access to the European Union single market as EU members still have not come to terms with their own regulatory changes for the sector, according to the European Commission executive vice president Valdis Dombrovskis.
The result, he said, is that it could take some time to secure market access for the UK and any equivalence decisions would likely not be made before the December 31st deadline, leaving firms to navigate complex access agreements determined country-by-country.
Brussels only grants equivalence if the UK’s regulatory regime is comparable to the EU’s.
Financial services access after the end of the Brexit transition period on 31 December has not been a part of the broader UK-EU free trade deal talks as each country can decide unilaterally whether to allow entry to the other’s financial services firms.
However, EU negotiators have wanted to link this aspect to the wider negotiations.
There are roughly 40 equivalence provisions embedded in different EU financial regulations, ranging from use of non-EU trading platforms and clearing houses to reliance on credit ratings.
The City of London’s unfettered entrance to the EU, its biggest customer, is estimated to be around £26 bn ($34 bn) annually. Although many market participants expect that London will continue to remain Europe’s biggest financial centre with trillion-dollar foreign exchange trading and derivatives clearing staying put for now, other trading activities may be limited.
For example, last month the Commission said that it would not allow banks in London to offer wholesale investment services to EU investors, which has put pressure on them to shift more activity to continental hubs.
To date, the mass exodus to the continent that was forecast has not materialised and it is difficult to predict how many jobs will move to the continent from London in light of Covid-19. Research from think tank New Financial, shows that around 330 financial firms have already relocated some business impacting 5,000 staff by October last year.
One of the most notable was Bank of America which transferred London staff into its Paris office but earlier this year, JP Morgan bought a second building in
Paris that can house up to 450 employees, in its efforts to move its euro-related trading operations out of London due to Brexit. Meanwhile HSBC is thought to be shifting as many as 1,000 jobs to France from Canary Wharf.
More recently BNP Paribas said it has created 400 new positions in continental Europe due to Brexit, of which 160 are in the front office, with the remainder in areas like technology. ING also announced it was relocating a subset of financial markets (FM) trading activities – around 30 trading roles and 15 related risk management roles – to Brussels from London.
Whether they move or not, market participants and lawyers are strongly advising firms to continue with their no deal planning because conducting cross border business outwards from the UK will be dependent on country by country analysis and this will be complicated.
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