Brexit: Andrew Bailey discusses financial equivalence with EU
And Professor Daniel Hodson, chairman of the CityUnited Project, believes the City of London is well-equipped to thrive as a global financial centre without bending to the will of Brussels. Prof Hodson published an op-ed via CityUnited’s website in which he suggests the relocation of EU share trading from London to Amsterdam, confirmed this week, was far from the calamity some have suggested.
And he followed it up by weighing in on the announcement of a so-called Memorandum of Understanding (MoU) between the UK and the EU on the subject of financial services, announced by the Treasury yesterday.
The trade deal which Prime Minister Boris Johnson signed off on last December contained little reference to financial services, despite their massive importance, contributing £132billion to the UK’s economy in 2019, 6.9 percent of the total economic output, according to the House of Commons library.
Problems arise as a result of post-Brexit divergence when it comes to rules and regulations governing the sector.
Boris Johnson has been told the City of London will thrive regardless of a deal with the EU
Professor Daniel Hodson
EU chief negotiator Michel Barnier is on record as saying a system of mutual equivalence may not be possible as a result of the UK’s ending of free movement and decision to no longer recognise the jurisdiction of Luxembourg’s European Court of Justice, which enforces single market rules.
So far, Britain has granted equivalence status to EU finance firms in 17 areas – but Brussels has failed to reciprocate, only giving UK businesses temporary equivalence status.
Prof Hodson, who is also the former deputy chief executive of the Nationwide building society, told Express.co.uk: “The shape of the MoU is now clearly on display.
Boris Johnson signs the trade deal negotiated by Lord David Frost, in December
“As predicted by those closest to the action it really is a small earthquake in China.”
He explained: “It has set up no more than a talking shop ‘Regulatory Forum’ about ‘voluntary’ regulatory cooperation but with no teeth, and it certainly leaves the whole issue of equivalence entirely open.
“We, in common with an increasing number of opinion formers, think that EU equivalence is a political dead duck and that we should continue to look to strengthening the City’s global leadership as our strategic priority.
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Michel Barnier, the EU’s chief Brexit negotiator
The UK no longer recognises the jurisdiction of the European Court of Justice
Prof Hodson added: “The MoU certainly does not change things.
“However insofar as there is a comparison with EU-US financial services collaboration, there is a possibility that certain business, notably Euro Interest Rate Swaps, may be possibly be reshored to the UK from the US, where such trading has been moving on the basis of an EU-US agreement. This would be a good legacy.
“Yet, as our OpEd says, this part of trading is merely electrons and the decision making and value added has stayed in the UK anyway.”
With respect to the evolving situation, he said: “The City earns its keep and will maintain its dominance by being where the fund managers and the sales traders are located, as well as providing the best service to their clients, based on know-how and trust.
City of London: One of the world’s premier financial centres
“Where the basic transaction takes place is of limited relevance and low profitability. Yes, a specific piece of business, on exchange EU share trading, has moved – predictably – to Amsterdam but that’s only the tail end of any transaction process; the valuable part stays firmly in London.
“The very limited relocation of people to the Continent and the rush by EU firms to set up in the UK are significant tangible symptoms, as are the empty English language schools in Frankfurt.”
In a statement issued yesterday, the Treasury said: “Technical discussions on the text of the MoU, which was agreed in a Joint Declaration on Financial Services Regulatory Cooperation alongside the Trade and Cooperation Agreement, have now been concluded.
Amsterdam’s financial district
“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, once signed, creates the framework for voluntary regulatory cooperation in financial services between the UK and the EU.
“The MoU will establish the Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues.”