Chris Middleton reports on whether the EU may be about to delete additions the UK made to European financial regulations.
The UK’s exit from the European Union last month was heralded by aggressive comments from Chancellor of the Exchequer Sajid Javid, who said that the UK would diverge from European rules and regulations.
In an interview with the FT on 17 January, Javid suggested that there would be no alignment with EU rules after the 11-month ‘business as usual’ transition period.
“There will not be alignment, we will not be a rule taker, we will not be in the single market and we will not be in the customs union, and we will do this by the end of the year,” he said.
Javid added that UK businesses had already had more than three years to prepare for the reality of a new relationship with Europe. However, the problem is that businesses have been given little or no detail about how the relationship will change.
Nevertheless, his comments were echoed this month by Foreign Secretary Dominic Raab, who told the BBC that alignment was “not even on the negotiating table” in what he saw as an emerging Canada-style deal – comments that were seen as sabre rattling by some political commentators.
Given that the EU represents 45 percent of all UK trade, the government’s stance has alarmed a number of sectors, including Manufacturing, Aviation, Food & Drink, and Financial Services – as previously reported on Transform Finance – with the CBI urging the government not to treat the right to diverge from EU regulations as an obligation to do so.
In January, European Commission President Ursula von der Leyen emphasised that the EU’s offer of tariff-free, quota-free trade would be dependent on the UK’s continued alignment with its rules and regulations. However, it is becoming clear that equivalence may not be on the cards.
Almost 80 percent of British jobs are part of the Services sector, and nearly half of its exports go to Europe – according to figures published by Javid himself in the Telegraph and on his own website prior to the Brexit referendum.
“Of the trade agreements the EU has with more than 50 countries around the world, not one gives service industries the same level of guaranteed access as the Single Market. Not one. […] And that’s because services are complex and highly regulated,” he wrote.
“Unless the exporting country submits to the importing country’s rules and local regulator, access will be denied. Maybe the EU will break the habit of a lifetime and come up with something new just for us.”
However, rumours are growing that the EU may instead be planning to undo the concessions it made to the UK during the 47 years of its membership – some of which apply to Financial Services, including reporting, and trading in stocks, derivatives, and commodities.
MiFID is just one such rule. Markus Ferber, a German member of the European Parliament, told Bloomberg that it would be naïve to think that the EU would not change the financial rulebook after Brexit – not rewrite it, as such, but delete the additions that Britain made to it.
While the UK wants to position itself as a safe, trusted place to do business across a host of different fields, UK banks, insurers, and investment companies have long relied on equivalence in UK law, and have been able to influence EU regulations from the inside. Since 31 January, that is no longer the case.
“Combining the MiFID review with equivalence allows them the possibility to move the goalposts for equivalence, which could very well give the EU more leverage,” Nathaniel Lalone, partner at London law firm Katten, told Bloomberg.
“There is a risk that the MiFID review could be misused for political ends, which could ultimately, and regrettably, serve to frustrate access to EU markets by City firms.”