UK and EU negotiators have secured a deal on the future relationship for financial services firms operating in the two jurisdictions after Brexit, The Times newspaper reported on Thursday.
Citing UK government sources, the Times reports that the two sides have struck a “tentative” deal that will allow the UK “continued access to European markets” once Britain has left the EU.
Securing a deal for financial services has been seen as one of the most difficult parts of Brexit talks because of the highly international, highly regulated nature of the industry. Britain currently relies on a system of so-called “passporting,” but will likely need a new framework for its relationship after Brexit.
Passporting rules allow EU finance companies to sell their services across the 28-member bloc with a local license, rather than getting a license to operate in each member country where it does business. Its use is tied to membership of the European Single Market. Britain is likely to leave the Single Market as part of Brexit and will no longer be able to do business using these rules once it has left the EU.
The Times reports that the new relationship will be based around the principle of equivalence.
Under the equivalence framework, the EU acknowledges that the legal, regulatory, and supervisory regime of a non-EU country is as good as its own and allows that state access to the financial services sector within the bloc. Countries like Singapore and the USA use a similar system to trade financial services with the EU.
The UK government has consistently maintained that it will seek to improve on existing requirements for equivalence of rules between the EU and outside countries.
The EU was initially sceptical of these plans— claiming it did not allow the bloc complete autonomy — but has softened in recent months, and now appears to have conceded that this system is the best way forward.
Under the proposed system, The Times says equivalence rules will be tweaked, meaning that current system, whereby “market access can be withdrawn unilaterally with only a month’s notice” will be removed, with the time period extended, and the enforcement of the equivalence principles falling under the governance of the main EU-UK trade deal.
Senior EU officials, however, poured water on reports of a breakthrough, with chief negotiator Michel Barnier describing media reports on the subject “misleading.”
“Misleading press articles today on #Brexit & financial services. Reminder: EU may grant and withdraw equivalence in some financial services autonomously. As with other 3rd countries, EU ready to have close regulatory dialogue with UK in full respect for autonomy of both parties,” he tweeted.
The pound has responded well to the reports of a deal for the City, with the UK’s currency jumping more than 1.1% in early morning trade on Thursday. By just after 8.45 a.m. GMT (4.45 a.m. ET) the pound is trading at 1.2908 against the dollar, as the chart below shows: