To paraphrase the Conservative Party’s election slogan, Brexit is, in a strictly legal sense, already ‘done’. However, as trade talks between the UK and the remaining EU states commence, it remains far from clear how the UK’s exit from the Union will affect the financial services industry.
The new Chancellor of the Exchequer, Rishi Sunak MP, has written to Valdis Dombrovskis – the Latvian who is the European Commission Vice-President for the Euro and Social Dialogue – on the subject of ‘equivalence’, i.e. how similar the financial services rulebooks of the UK and the EU will be in future.

The current position, as set out in the letter, is that equivalence assessments will be completed very soon. Here the letter reads:
“Both parties have agreed to start assessing equivalence with respect to each other under their respective frameworks as soon as possible after the United Kingdom’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020.”

The remainder of 2020 will be a transition period where the existing UK/EU trade relationship will be maintained. The rules UK financial services firms need to follow are unchanged and the passporting system remains in force. On December 31 2020, the rulebooks of the UK and the EU will be equivalent, and the key question is then ‘to what extent will these rulebooks diverge in the future?’

Mr Sunak’s letter concludes by saying he hopes to establish a dialogue for the exchange of information to support the two parties’ autonomous decision-making on equivalence; and finally, he mentions that the UK has already published its approach to the trade negotiations, including its specific negotiating position on financial services.

The Government has previously indicated it is seeking a very similar trade agreement to the one Canada has with the EU, even though the EU negotiators are reluctant to agree to this, on the basis that the UK is a bigger economy than Canada’s, and the fact the UK is much closer to continental Europe. There is also no agreement covering financial services in the EU-Canada deal that is in any way similar to the current passporting scheme.

John Barrass, deputy CEO of the (PIMFA), recently appeared on a Bloomberg podcast, and the presenter began by commenting that the UK and the EU seemed to have significant differences of opinion. Mr Barrass, however, began by saying that “you need to sort out the grandstanding bits from what is the real nub of the negotiations”. Instead he focussed on whether equivalence could be achieved but commented that with many of the Financial Conduct Authority’s rules there is no equivalent rule in the rest of the EU. Instead he speculated that equivalence clauses could be added to assist UK firms in continuing to service retail clients who live in continental Europe. Mr Barrass went on to say that the Government has not provided any assurances to the financial services industry that things will “run smoothly” from 2021 onwards.

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article