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Finance bosses prepared if Brexit ends badly

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With disagreements in the talks between the EU and the UK hampering progress, the Brexit negotiators on both sides have ramped up their rhetoric around the likelihood of the UK crashing out of the European Union without a deal. For finance firms, news of such a split is nothing new. They have been preparing themselves for it ever since the referendum took place in 2016.


A poll conducted by consulting firm Ernest Young of 138 financial services heads, even as far back as July, found about 75 per cent of them said they did not expect a financial services deal would be agreed by January 2021. One of the main stumbling blocks in the talks has been the matter of equivalence.


The UK had hoped to secure a Brexit deal for financial services based on an improved version of the EU’s current framework to non-members, where its regulators declare financial rules equivalent on a piecemeal basis.


Finance company executives accepted equivalence wouldn’t be granted when the EU’s chief negotiator, Michel Barnier, in June, accused the UK of trying “to keep as many single market benefits as it can”, in spite of choosing to leave the European Union.


The EU financial services chief Valdis Dombrovskis has also since warned London finance firms that any equivalence decisions would likely not be made before the end of 2020.


A partner at law firm Clifford Chance, Simon Gleeson said: “The EU has made clear that its decision on equivalence and market access will be unilateral, and will not be subject to any agreement with the UK.” He added: “That effectively takes financial services out of the negotiation process.” The global chairman of financial regulatory practice at law firm Latham and Watkins, Rob Moulton said; “Whether you like that position or not, it is at least clear.”


With the possibility of a no-equivalence Brexit, company bosses in the financial district of London hope that regulators on both sides of the argument will provide the solutions required to prevent any major upheavals after 1st January.


Regulators in the UK and EU are expected to help to ensure that financial companies in both the UK and EU can help share data with each other in case of a no-deal Brexit.


Without regulatory intervention in case of no-deal, UK financial firms could lose access to the European markets overnight and find themselves unable to serve their EU clients from London. Gleeson said trust between regulators matters much in a no-equivalence Brexit and seemed “to be a good deal stronger between UK and EU bodies”.


Moulton said the general agreement within London finance firms is that where financial regulators could solve problems arising from Brexit negotiations, they will.


The Brexit head at the UK’s Financial Conduct Authority, Nausicaa Delfas said in late 2019: “There will be continuity in our relationships and agreements with regulators around the world, and our EU relationships will remain strong.” Thousands of staff in firms in the financial district of London have been tasked with preparing for a crash-out exit since the vote to leave the EU over four years ago. With Brexit just 90 days away, that preparation would now seem most convenient.


Managing director for public affairs, policy and research at trade body TheCityUK, Emma Reynolds said: “The industry has already taken significant action” for a no-deal outcome.


“This will only accelerate between now and the end of 2020.” With the outcome of Brexit negotiations gradually becoming clearer, some are beginning to draw conclusions while others are still of the opinion of a last gasp deal. (The author is our correspondent based in the UK)


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