LONDON – The United Kingdom 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 advantage in the negotiations.
It has been a central topic of debate after the UK 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 activities. On the other hand, the city is also a vital source of finance for European companies.
However, Brexit inevitably changed that relationship. Upon leaving the EU, the UK lost access to the free flow of EU people, goods and services, and this affects the way financial services operate.
European financial centers, rivals of London, benefited in the weeks after the United Kingdom ended EU rules on 31 December. The Dutch capital Amsterdam, for example, saw an increase in the amount of business it does. A portion of the euro-dominated financial products was also completed outside London.
“The shift in the stock trade of names listed in the EU from the UK to the Netherlands was certainly unprecedented in its size and the fact that it all happened overnight on January 4th. But it was not unpredictable,” David Howson chairman 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 financial services relationship in early 2021. However, there is a widespread view that Europe will not recognize UK rules as equivalent to its own, which would limit the ability of companies based in the UK to trade more freely in the block.
“I don’t see the likelihood of an equivalency agreement,” said Howson.
“There is certainly no incentive for the European Commission and ESMA (European Securities and Markets Authority) to seek equivalence given the share of negotiation that has now moved, as we said, almost permanently to Europe,” he added.
Bank of England Governor Andrew Bailey said earlier this month that it would be a “mistake” if the EU decided to block the city of London in some way.
“The EU has argued that it must better understand how the UK intends to amend or change the rules going forward. This is a standard that the EU does not impose on 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 them as equivalent to its own.