The EU and UK are set to move towards closer ties on financial services regulation after the European Commission on Wednesday (17 May) adopted a draft Memorandum of Understanding (MoU) on the sector.
An MoU was initially agreed in March 2021 but became a victim of the dispute between London and Brussels over the Northern Ireland protocol, with the EU executive refusing to finalise it.
Reforms to the protocol, which sets out the trade rules for goods travelling between Britain and Ireland, known as the Windsor Framework, were agreed by UK and EU officials in February and have now been ratified by both sides.
The MoU is now set to be approved by EU finance ministers at the next meeting in June, after which it will formally enter into force.
The post-Brexit trade and cooperation agreement between the UK and EU does not cover financial services meaning that UK-based firms cannot “passport” their services across the bloc after the EU refused to agree to ‘mutual recognition’ of the UK’s financial service laws.
Instead, it includes only a joint declaration on financial services regulatory cooperation which promises transparency and appropriate dialogue during the process of adoption, suspension and withdrawal of equivalence decisions by the European Commission.
The MoU does not deal with the access of UK-based firms to the Single Market – or EU firms’ access to the UK market – nor does it prejudge the adoption of equivalence decisions.
This will feature a Joint EU-UK Financial Regulatory Forum where the two sides’ regulators can discuss issues related to financial services, which is the UK’s single largest industry in terms of income and tax revenue.
“I am confident that our relationship and future engagement in financial services will be built on a shared commitment to preserving financial stability, market integrity, and the protection of consumers and investors,” the EU’s financial services commissioner, Mairead McGuinness, said in a statement.
Although the UK’s exit from the EU Single Market has forced many firms to move some of their services out of London and set up operations in EU-based hubs such as Frankfurt, Amsterdam and Paris, London has not lost its position as Europe’s main financial centre.
Last December, UK Chancellor Jeremy Hunt set out plans for the first major regulatory changes to the UK’s financial services sector since Brexit, including the proposed repeal and replacement of the EU’s Solvency II legislation which governs the insurance industry, alongside over 30 other reforms to reduce regulation.
[Edited by Alice Taylor]
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