LONDON (Reuters) – The City of London may remain largely cut off from the European Union’s financial markets, industry officials warned on Thursday, saying a future co-operation agreement won’t automatically unlock access.
Britain’s new post-Brexit trade deal with the EU does not cover financial services, leaving the City largely isolated from its biggest customer, fragmenting markets and helping New York to pick up business, the officials said.
Britain and the EU are in talks to agree a memorandum of understanding (MoU) by March to set up a forum for cooperation between financial regulators, raising hopes of greater EU access for the City.
“We have to be clear eyed, the MoU has negligible legal effect and depends on goodwill,” Miles Celic, chief executive of TheCityUK told a House of Lords committee.
“It’s a talking shop,” added Nick Collier, managing director of the City of London’s Brussels office.
The EU has granted temporary access only for derivatives clearing and settlement of Irish securities under its equivalence system.
Some 6 billion euros in daily share trading left London for the EU last week, joining 7,500 jobs and over a trillion pounds in assets since Britain voted to leave the bloc in 2016.
Brussels says it wants an MoU to help it find out how far the UK will diverge from EU financial rules before granting more market access. Britain insists that changes to its rules won’t mean a watering down of standards.
In the meantime, activity leaving Britain may not return.
“The longer we don’t have equivalence on the EU side, the more the concrete will set. There would be further costs in shifting business back,” Celic said, adding that New York was already benefiting from new business.
EU market participants have also had to shift derivatives trading from London to platforms in the EU or venues in the United States that already have equivalence.
Collier said he was sceptical the EU would grant trading equivalence given it wants to build up its own capital market.
“The MoU will not deliver equivalence,” he said.
Separately, Michael Thiel, a senior official in the European Commission’s financial services unit, told a webinar that a review of EU securities rules this year aims to make the EU the “main and most efficient place to trade in euro denominated assets”.
Celic said that Britain too needs to spell out a future strategy.
“What is the vision for financial services for the UK outside the EU? There needs to be a clear statement on what we want from financial services,” Celic said.
Reporting by Huw Jones; Editing by Kirsten Donovan
