How is the UK's financial services sector changing in response to the post-Brexit environment? We provide a brief overview of the current position, together with links to more detailed materials.
The UK-EU Trade and Cooperation Agreement (TCA) contains comparatively few provisions that specifically address financial services; it does not (and was never going to) address the critical question of equivalence, a matter which is of key significance to the UK economy and is progressing separately (see below). Alongside the TCA, the UK and the EU also agreed, in a non-binding joint declaration, to establish a Memorandum of Understanding (MoU) establishing a framework for regulatory cooperation on financial services. Talks on this have now been concluded and it has been announced that, once signed, a Joint UK-EU Financial Regulatory Forum is to be established, which will serve as a platform to facilitate dialogue on financial services issues. Whilst this would be a welcome development, in the short term, it seems unlikely that this will deliver much in the way of substantive improvements upon the immediate post-Brexit position as regards financial services. For more detail, see our business-friendly guide to the TCA.
The TCA does not address the critical question of equivalence. This is a matter of respective unilateral decisions (taking place outside the framework of the TCA) and is not one of bilateral negotiation. It takes account of national interests and therefore does not involve an objective assessment of "equivalence". The UK has already announced a package of unilateral equivalence assessments over and above its temporary arrangements in some, but by no means all, areas. The European Commission's process of assessing the UK's regulatory framework is continuing. It remains to be seen how long it will take before there are meaningful mutual equivalency declarations and, if so, in which of the regulatory regimes there is such mutuality.
The UK is also looking at deference mechanisms more generally, i.e. where regulators defer to each other when they consider this justified by the quality of their respective regulatory regimes, and mutual recognition agreements with overseas partners.
The UK Government is also focussing on reforming UK financial services regulation, seeking to move away from "inflexible and overly restrictive" EU regulation and instead adopt an approach more suitable for the UK's future needs. This includes the Future Regulatory Framework Review, reform of the UK's wholesale capital markets, the Payments Landscape Review and the UK fintech initiatives.
