The MoU intends to avoid unnecessary incompatibilities and overlaps in rulemaking while leaving each side free to develop its financial system
The European Union (E.U.) and United Kingdom (U.K.) have finalized the Memorandum of Understanding (MoU) that will set the conditions for U.K. and E.U. financial regulators to share information.
The MoU will not automatically allow Britain to sell financial products and services to E.U. clients again. The MoU would create a “Joint U.K. – E.U. Financial Regulatory Forum” that would help in shaping rules for banks and financial markets, post Brexit. The MoU now awaits the official sign-off by the authorised signatories of both the sides.
The MoU is important for U.K. as its financial sector has been hit due to Brexit. In January 2021, more than 6 billion euros in daily share trading left London for Amsterdam, along with swathes of trading in derivatives. Separately, E.U. is planning forcing the clearing of euro swaps, still dominated by the London Stock Exchange’s LCH arm in London, to move to the bloc.
The statement from U.K. read, “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 MoU intends to avoid unnecessary incompatibilities and overlaps in rulemaking while leaving each side free to develop its financial system as per its requirement.
The Joint U.K. – E.U. Financial Regulatory Forum activities would focus on reducing uncertainty and identifying potential cross-border implementation issues. It will also see that E.U. and U.K. co-operate to prevent regulatory arbitrage, the problem of financial institutions being attracted to jurisdictions with weaker rules.
However, the U.K. feels that the forum falls short of the legally binding co-operation arrangements which it had hoped to secure during its future-relationship talks last year with Brussels. EU officials said that at the time they feared that U.K. would try and reduce E.U.’s say on decisions to curb U.K.’s access to the E.U. market.
Speaking on the occasion, the Managing Director of Lazard Asset Management – Alan Custis said, “Overall, for investors in UK financial services, a greater degree of cooperation between Europe and the UK can only be seen in a favourable light.”
The Chief Executive and Founding Partner of Stanhope Capital – Daniel Pinto said, “Achieving a form of equivalence with the EU is essential but it should not detract us from the real challenge: making London and other financial capitals in Europe more competitive relative to the fast growing US and Asian markets.”
Once the MoU is officially signed, the E.U. and U.K. will work towards “Equivalence Decisions” which would allow U.K. based investment firms, trading platforms and other financial companies to serve European customers. U.K. had made this clear during the Brexit deal.
Besides, the Chancellor of U.K. and the E.U. Commissioner for Financial Services will also hold 2 meetings every year to discuss upon the progress made and future initiatives.
The agreement is similar the agreement which E.U. has with U.S. for arranging regular, informal and non-binding meetings of financial regulators to discuss new rules and clear disagreements.
