The UK and EU are reportedly close to signing an agreement on the future of financial services after Brexit. The memorandum of understanding, which outlines how financial regulators in the UK and EU will interact and communicate, was initially expected to be agreed in 2021 but was delayed due to disputes over fishing permits and accusations of international law breaches. However, progress on the new agreement suggests that relations between the two sides are improving under Rishi Sunak’s premiership.
Sources familiar with EU thinking have said that the text of the document is likely to be presented to national experts from member states next week, with the agreement being handed to the UK once signed in about a month’s time. UK government and regulatory officials close to the process have suggested that a final agreement could be reached by June.
If the agreement is signed, it would be a significant sign of increased UK diplomacy on the matter, although there are still several matters to be agreed upon between the two parties. UK clearing houses have been granted “equivalence” only until 2025, putting a time limit on the ability of European banks and businesses to clear euro-denominated derivatives trades in London’s liquid markets.
However, if both the UK and the EU feel they are operating within a mutually beneficial framework, underpinned by the new arrangement, then regulators would find future cooperation and rule-setting much easier.
It is important to note that any agreement would not equate to equivalence or access to the single market, and that such a document would simply be a way to structure how regulators speak to one another. This means that any signing will likely be met with little fanfare in large parts of the City of London.
Nevertheless, for Sunak, any agreement will be seen as a further incremental step in repairing relations with the EU, and will raise hopes that the UK could secure further wins in the future. The accord could smooth market access between the UK and EU, spurring officials either to seek further quick wins on financial services or to allow the memorandum to bed in as a sign of goodwill.