Bloomberg: The Key Issues Weighing on the City of London After Brexit Deal

29 December 2020

U.K. firms have days left to prepare for looser EU links; Local offices, equivalence and market disruption on the agenda

Britain’s long-awaited trade deal with the European Union still leaves many questions unanswered for the world’s biggest banks, trading venues and money managers as they prepare for a rupture in the region’s financial system.

They’ve been bracing for departure day since Britain voted to quit the European Union in 2016. Since then, little progress has been made in crafting a future relationship between the respective finance industries even though the City of London, the continent’s dominant hub, will be firmly outside the EU in a matter of days.

U.K. Chancellor of the Exchequer Rishi Sunak said Sunday that discussions with Brussels over access for financial services will continue. The two sides have said they will look to reach a Memorandum of Understanding around regulatory cooperation by March.

Here are some of the issues the finance industry will be looking to address now that a Brexit trade deal has been reached.

Equivalence

Besides the trade talks, finance executives have been worried about the separate process of securing “equivalence.” The U.K. has given up its rights to “passports” for cross-border banking, so London firms hoping to do business in the EU must generally rely on Brussels declaring that Britain’s rules are robust enough in each area of finance.

So far, the EU has allowed access to London’s dominant clearinghouses until June 2022 to keep the multi-trillion dollar derivatives markets stable, but has been reluctant to extend the same rights to investment banking and trading stocks. On the U.K. side, Sunak unilaterally granted equivalence to EU firms for capital, auditing and insurance standards in November. The U.K. has previously said British firms can continue trading all shares through EU venues, even if mutual equivalence cannot be achieved.

But there’s been few concessions from the EU and equity markets could still fracture without equivalence if the bloc forces European investors to trade EU shares within its borders. Industry lobbying groups are ramping up pressure for a last-minute reprieve on derivatives trading to make sure deals can be done in an efficient way across Europe. Without a solution, some derivatives business might abandon Europe and move to the U.S., which already has equivalence from the EU....

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