The UK is on course to secure less on financial services in its trade deal with the EU than the bloc has negotiated with Japan, underscoring the extent to which the sector is being sidelined in talks between London and Brussels.
Catherine McGuinness, head of the City of London Corporation’s policy and resources committee, said the trade arrangements that Japan has secured for its financial services industry with both the EU and the UK stand as a “model” that should be replicated elsewhere.
Speaking before London and Tokyo on Friday signed a post-Brexit trade deal, Ms McGuinness warned that Britain’s services industry was emerging as the “neglected child” of the EU-UK talks on a future relationship.
“We certainly want the EU to offer us something at least as ambitious as they are offering Japan — we are closer neighbours and bigger partners,” she told the Financial Times.
“We do see some really promising signals about what we might achieve in other parts of the world that we would like to see replicated too with our EU partners.”
The EU and UK this week revived talks aimed at striking a trade deal before Britain’s exit from the bloc’s single market at the end of the year. But while the accord would grant tariff-free, quota-free benefits to goods exporters, it will offer far fewer benefits to services providers.
Ms McGuinness said it was “extraordinary” that EU-UK negotiators were currently spending so much time haggling over the European fishing sector while devoting so little attention to the financial services industry given the latter’s importance to the British economy.
Services, she added, “does seem to be the forgotten child. We don’t want it to be the neglected child of an acrimonious divorce, carrying its pyjamas between its parents”.
Brussels’ agreement with Tokyo, which took effect in 2019, established a joint “regulatory forum” for proposed rule changes by either side affecting financial services, plus “technical mediation”. It also entitled either side to “appropriate” consultations before the withdrawal of unilaterally granted market access privileges.
Britain’s agreement with Japan also establishes a dialogue between the UK Treasury, regulatory authorities such as the Bank of England and the Japanese Financial Services Agency.
Market access privileges known as equivalence rights are at the heart of future EU-UK trade arrangements for financial services.
They allow Brussels to unilaterally decide to allow brokers, exchanges and other financial services companies based outside the bloc to serve EU customers, based on its assessment that another country’s regulation of the sector is equivalent to that in the European single market.
Britain in February called for a future EU-UK trade deal to establish “appropriate consultation and structured processes” before market access rights were withdrawn for financial services.
But Brussels rejected the idea, arguing that Britain was in practice seeking to go further than the EU-Japan deal and to tie the bloc’s hands.
EU officials pointed to how the bloc’s deal with Japan made clear that each side could still “rescind” market access rights.
There was also a more general concern on the EU side that Britain’s desire to break free from the bloc’s rule book and chart its own course necessitated particular caution.
Britain has been counting on equivalence decisions by the EU granting UK financial services companies access to the European single market after the Brexit transition period ends in December.
But Brussels appears to be dragging its feet — so far, its only equivalence decision has been to temporarily safeguard EU customers’ access to UK-based clearing houses until mid-2022 on financial stability grounds.
The EU has ruled out taking any short to medium term decisions on market access rights for UK investment companies.
A European Commission spokesperson said the assessments of the UK’s regulation of financial services were “currently ongoing”.
“Assessments are challenging because they will have to be forward-looking, taking into account overall developments, including any intention by the UK to diverge from EU rules,” said the spokesperson. “That is why we need clarity on how the relevant UK rules will evolve after January 1.”
The UK government declined to comment.
Ms McGuinness said that building future EU-UK relations would have to be a long-term project, with the mooted trade deal now serving only as a foundation for further discussions.
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