Brexit: UK, EU Reach Post-Brexit Agreement on Financial Regulation – Bloomberg

A pedestrian passes skyscrapers in the City of London.

Photographer: Jason Alden/Bloomberg

Photographer: Jason Alden/Bloomberg

Britain and the European Union took their first step since Brexit to cooperate on financial services, agreeing on a new forum to discuss market regulation.

The move could help finance firms in the City of London to eventually win back some access to the single market they lost when the U.K. left the EU.

The two sides have agreed a memorandum of understanding on financial services, the U.K. Treasury said in a statement. The content and substance of the deal has been finalized, and the two sides are now working on the formal process of validation.

Technical discussions on the text have now been concluded, the press release says, adding that formal steps need to be undertaken on both sides before the MoU can be signed but it is expected that this can be done expeditiously.

The memorandum sets out a framework for regulatory cooperation and a joint forum for discussing rules and procedures as well as the sharing of information. It is separate from any decision on equivalence, a series of unilateral rulings that each side can make that offer market access to financial services.

The pound rose 0.6% to a session-high $1.3812 immediately after Bloomberg reported the news earlier.

Its a positive for sure, said Jordan Rochester, currency strategist at Nomura International Plc. The market had come to expect further standoffs on financial regulation and the details still need to be sorted out.

Since Brexit took effect at the beginning of 2021, London-based financial firms have been largely unable to operate in the bloc, forcing banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc. to move billions of dollars in assets and thousands of staff to the continent. The trade agreement signed by the two sides last year largely sidelined the finance industry, and the EU has said since that its in no rush to grant equivalence findings that would restore British firms trading rights.

Brussels has fretted that the U.K. is veering from EU standards, taking it further away from equivalent status. The lack of agreement has put Londons decades-long dominance of European finance under threat and left many U.K.-based finance firms that wish to do business inside the EU saddled -- perhaps indefinitely -- with the added complexity and cost of supporting operations in both the U.K. and the bloc.

Read more about Brexits impact on the City of London

While the MOU process is entirely separate to equivalence, some EU officials have said that securing a common framework around certain financial services rules could help unlock some limited equivalence decisions allowing U.K. firms access to the wider EU market.

We know we would want to make progress after the MOU around some issues, Mairead McGuinness, the blocs commissioner for financial services told journalists this month, while warning that divergence would hamper any equivalence rulings.

How Equivalence Holds Key to Post-Brexit Banking

An earlier draft of the agreement seen by Bloomberg says the U.K. Chancellor of the Exchequer and the European Commissions top financial services official should meet twice a year to discuss regulation. It also says the forums activities include:

With assistance by Alex Morales, Greg Ritchie, Silla Brush, and Aoife White

(Updates with U.K. Treasury statement in third and fourth paragraph.)

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Brexit: UK, EU Reach Post-Brexit Agreement on Financial Regulation - Bloomberg