What would a UK-EU thaw mean for financial services?

British Minister Nick Thomas-Symonds was in Brussels on July 15, after his Labour government was elected with a massive mandate for rebuilding relations with the EU.

Prime Minister Keir Starmer has vowed to fix the “failed Brexit deal”, Facilitating border controls for animals and touring musicians, but has remained relatively silent on what it might do for the totemic financial services sector from United Kingdom.

The sector itself is hopeful of being able to benefit from warmer relations with the EUbut remains cautious about what can be achieved after so much Brexit disappointment.

“I hope there is a more positive and constructive working relationship “between the UK Government and the EU,” Chris Hayward, political chairman of the City of London Corporation, told Euronews, adding: “We want to make sure that there are no barriers to access to the international market“.

He British financial sectorwhich in some cases represents 12% of the country’s economic production, bore the brunt of increasingly fractious Brexit negotiations.

The agreement of Boris Johnson’s departure promised a relationship based on equivalence, in which British standards are considered similar enough to EU standards so that there may be limited market access for specific sectors.

But even in this case, Brussels dragged its feet and only offered equivalence in one area: that of financial clearing houses. The EU did not sign a memorandum setting out the details of cooperation until several years later, in 2023, once a broader impasse regarding the northern irish border.

Hayward, who represents the local authority that also acts as a de facto lobby group for the financial sector it hosts, is frank in saying that – after all the tumult – progress will not be rapid.

“After a painful divorce of seven or eight years, you don’t just start over again suddenly, as if nothing had happened,” she says.Trust must be rebuilt…that takes time.”

In background

There is no doubt that the financial sector has taken a backseat in public statements on the UK’s re-entry into the EU. In Downing Street, Starmer and British Foreign Secretary David Lammy, have indicated support for Ukraine and the fight against climate change as possible areas of cooperation.

It may be difficult, though not impossible, to include financial stability issues in a New UK-EU security pactBut many in the financial sector argue that it is too late to put the genie back in the bottle.

Unlike automotive sectorFor example, finance had the resources to adapt, and now they consider it a sunk cost.

“Nobody in London expects anything that has moved from the UK to the EU to come back,” says William Wright, managing director of the think tank New Financial, citing some 500 companies that have already applied for new licences, opened offices or transferred staff to the EU.

“What’s gone is gone”

Adapt to Brexit “It hasn’t been fun,” but “what’s gone is gone,” Wright told Euronews.

These changes mean that UK-based financiers continue to have the access they need in practice, as do EU companies that want to issue shares or raise venture capitalwhile now it is too late for Reversing EU decisions which caused stock trading to shift abruptly from London to Paris and Amsterdam, Wright believes.

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However, there are still some benefits to be gained from warmer relations. Important equivalence decisions are still at stake. EU financial trading rulesknown as Mifid, which would allow British investment firms serve continental customers more easily.

There could also be a change in EU thinking about how the equivalence system works, driven in part by single market reforms. recently proposed by former Italian Prime Minister Enrico Letta.

One option could be a system where Foreign companies can pay to be recognised as complying with EU standardsAdvances in areas such as technological regulation could also help the financial sector, driven by the innovation.

Hayward mentioned as useful AI cooperation; financiers also say they are hampered by EU restrictions on data flows or the use of US cloud computing providers.

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Be humble with demands on Europe, warns Starmer

Starmer’s promise to mutual recognition of qualifications could help British finance professionals, such as accountants, who occasionally work in the EU. But Wright, citing his colleague Charles Grant of the Centre for European Reformwarns Starmer against rushing.

“Be humble, take your time, be modest, listen to the EU,” Wright said. “Don’t storm in with unreasonable demands“.

If the British Government succeeds thawing icy relationsyou may find that there are also demands coming from across the English Channel.

“He [Brexit] “It creates problems for Europe, because Europe becomes more isolated from a very important market, a global market,” said Sébastien de Brouwer, deputy director general of the European Banking Federation.

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“It is important that the EU and the UK talk to each other“he said, as divergent regulations “could create some form of regulatory arbitrage.”

De Brouwer cites recent reforms that threaten force EU banks to use the financial markets infrastructure within the bloc and not in London, which could harm the national industry.

Reform “could put European banks on the continent at a disadvantage” compared to its British rivals, which have “access to a deeper and more liquid market” in London.