HM Treasury has confirmed that the UK and the European Union have agreed to a regulatory framework for the financial services industry following the UK’s departure from the block.
But “formal steps” still need to be taken before a memorandum of understanding (MoU) can be signed, the treasury said, but it expects this to be done “expeditiously”.
Once the MoU is signed, this will create a framework for “voluntary regulatory cooperation in financial services between the UK and the EU”, the Treasury added.
The agreement will establish a Joint UK-EU Financial Regulatory Forum, a platform which should facilitate dialogue on financial services issues.
It is also believed that the two parties agreed to have separate discussions on equivalence, the degree of access that the EU grants to third countries.
Beware of bureaucracy
But James Pearcy-Caldwell, chief executive at Aisa Group, told International Adviser that getting tangled up in the EU’s bureaucracy may not be great news for the UK.
“The idea that the UK should somehow sign up to, or replicate EU bureaucracy, in order to obtain limited access through ‘equivalence’ is hardly a step forward,” he said. “The EU could have given ‘equivalence’ on day one, especially with its powers to rescind it at any time within 30 days.
“EU bureaucracy limits innovation and, like the vaccine roll-out, works on the ‘pre-cautionary’ basis with protectionism inbuilt, thus limiting flexibility and making itself less appealing and less competitive globally.
“There is a false argument in services that it is the UK versus the EU. Actually, it always has been multiple individual countries competing for business with each other working within a framework controlled by multiple regulators with their own views, and more importantly, their own interests and promoted benefits.
“If you add in different legal and tax systems, then it is easy to understand that the framing of an argument about ‘the UK versus the EU’ would be more relevant if there was one basis of comparison.
“The real significance to the UK as a global financial hub is what the other global financial hubs are doing, and I am unconvinced they are particularly concerned with what individual countries in the EU are doing. They do care what London does though.”
‘More protectionism’
He believes that the separation from the EU could offer the UK an opportunity to “compete on a world stage” in financial services, but getting tangled in European bureaucracy could hinder that effort.
Pearcy-Caldwell added: “I did not vote for Brexit, but I recognise that it offers an opportunity to break free from an EU system that has no self-awareness or feedback loop built in, and is inherently uncompetitive when viewed from a world stage.
“With no feedback loop this only leads to the possibility of more unnecessary regulations; I have no recollection in the last 20+ years where a single financial regulation was reconsidered or cancelled, other than where tighter bureaucracy was being introduced.
“I would be an advocate of the UK seeking to take advantage of its sovereign status and allowing its financial sector to compete on the world stage, starting with the removal of much Mifid bureaucracy which benefits no clients at all.
“Where the two areas need to do business with each other, and be clear that they do, private companies will find ways through digital innovation and similar.
“Whilst Brexit will slightly diminish the UK financial sector, hence why I did not vote for it, Brexit does not remove the existing advantages of scale, legal process, tech, genuine protections, time zone and interconnectivity.
“EU-based companies still need access to a globally connected market and, ironically, EU legislation actually attempts to limit that, and is only likely to move to more protectionism.”
