UK to work more closely with EU on financial services

The UK is set to sign a memorandum of understanding with the EU over cooperation on financial services.

It will set up a forum where the EU and UK can meet twice a year to discuss financial regulation and standards.

The long-awaited move is being seen as a sign the UK is willing to work more closely with the EU.

The chancellor said building a constructive relationship was of mutual benefit, as the UK and EU financial markets are "deeply interconnected".

The memorandum was first outlined in the UK-EU Trade and Cooperation Agreement, in the wake of the UK losing unfettered access to EU markets under Brexit.

However, describing this as an "agreement" is misleading. It does not does mean the UK is committing to align with the EU on regulation, nor conceding to any previous demands Brussels may have signalled, such as moving the processing of some euro-denominated financial instruments out of London.

What it means is that the both sides are committing to a regular twice-yearly meeting to discuss "voluntary regulatory cooperation on financial services issues".

"Both sides will share information, work together towards meeting joint challenges and coordinate positions," the memorandum says.

Daniel Ferrie, a spokesperson for the European Commission, said the move would "set up a forum to facilitate dialogue".

However, he added: "It does not restore UK access to EU, nor prejudges adoption of equivalence decisions." Under equivalence, access to the EU can be granted to foreign firms in certain areas of financial services if the rules governing the sector are deemed "equivalent".

Crucially, however, coming after the agreement of the Windsor Framework, this is another sign that the UK has become more conciliatory and pragmatic in its approach to the EU than under previous Prime Ministers Boris Johnson and Liz Truss, and may potentially signal more alignment on future regulation. However any discussion of this is avoided in the text.

The EU accounted for 37% of UK financial services exports in 2019, and the UK has retained its position as Europe's most important financial centre post-Brexit, while far fewer jobs have moved, fewer than 10,000.

Chris Hayward, policy chairman of the City of London Corporation, said the signing of the memorandum "sets the stage for a new era of cooperation with our EU partners".

"We hope this agreement will help ensure both our financial services sectors remain open for business."

Treasury sources have conceded that the agreement of the Windsor Framework paved the way to get this memorandum over the line. This bodes well for closer working on some of the outstanding parts of the post-Brexit arrangements - not least the tighter rules around rules of origin that due to come in for carmakers.

But in practice it is unlikely to mean significant changes for financial services in the very near future. The likelihood is there is only time for three forums ahead of the next election.