In contrast to the situation just a year ago, when the European Union was initiating court action against the UK, for problems arising from Brexit agreements, all 27 member states of the EU are now hailing the strong and strengthening relationship between the two.
Russia’s invasion of Ukraine brought into focus just how many interests and values the UK and the EU have in common. A new approach by the UK government to negotiations with the EU on Northern Ireland has also helped to remove the major disputing issue in the relationship and replacing it with an agreement which the two sides see as an improvement.
With this resolution, there is an opportunity for the UK financial services to once again engage productively with its partners in the EU for the benefit of both economies. It’s an opportunity the UK must seize. Working together on sustainable finance in particular is imperative for all, given the shared environmental and energy security challenges being faced.
City of London Corporation’s chairman, Chris Hayward said this matter was top of the agenda on his visit to Luxembourg last month, where he discussed green finance solutions with the Luxembourg Sustainable Finance Initiative. On the climate issue he had discussions with representatives from government, regulators and the central bank.
Both sides need to build on the progress made so far. The House of Lords European Affairs Committee recently said that this should be seen as a reset in UK-EU relations and look at improvements to the relationship across the board.
From the perspective of the City (London’s financial district) this reset should be approached in a spirit of confidence, as London remains Europe’s leading financial centre and has much to offer – something which is appreciated by many of UK’s European counterparts. UK’s global financial centre benefits Europe as a whole, supporting businesses and consumers across the continent.
Hayward said both governments are urged to sign the Memorandum of Understanding (MOU) agreed two years ago. This will unable the UK and EU to establish an ambitious bilateral financial services dialogue.
Such a dialogue will pave the way for strengthening supervisory cooperation through data sharing and electronic reporting and crucially, collaboration in financing the green transition. This will take time and won’t remove all issues overnight, but it will get UK out of a state of limbo, putting it on the right track.
One other crucial issue is whether London’s clearing houses will continue to serve customers in the bloc. In 2020 the London Stock Exchange’s clearing house handled more than 90 per cent of interest-rate derivatives, denominated in euros. These interest-rate swaps are widely used by businesses to protect themselves against unexpected changes in borrowing costs.
The current arrangement is expected to end in 2025; an extension would be preferable by both sides. But it can go further than the MOU. The UK-EU Trade and Cooperation Agreement (TCA) leaves the issue of financial services to the MOU to cover. When the TCA comes up for its five-year review in 2026, the firms in the financial district will be pushing for better coverage of financial and professional services in particular.
With UK’s relationship with the EU thawing, it is in a much better place than in 2022. The renegotiation of the trade deal with Switzerland is evidence of that. This new deal will strengthen UK’s services trade relationship with a huge market whose bilateral trade is worth over £35bn annually to the UK.
An enhanced trade agreement should also address cross-cutting issues including mobility, data flows and digital trade. Further improvements will take time, but UK financial services must press forward now while the momentum is there for even closer UK-EU cooperation. (The writer is our foreign correspondent based in the UK)
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