By Huw Jones
LONDON (Reuters) – The European Union can not yet decide to give Britain access to the bloc’s financial market, although London and Brussels have agreed on a trade agreement, a European Commission official said on Thursday.
While the landmark trade agreement agreed on Thursday set out rules for industries such as fisheries and agriculture, it did not cover Britain’s much larger and influential financial sector.
There was hope that the trade agreement would pave the way for more access to the EU for the UK finance industry, but the EU indicated it was not in a hurry to provide it.
Brussels has only granted financial market access, known as “equivalence”, for two financial activities from 1 January, when the UK will have left the EU single market.
The Bank of England has said there could be market disruption if no further access is allowed.
Just minutes after Britain and the EU hailed their agreement on trade, the bloc’s executive said they wanted a “series of further clarifications” on how Britain will deviate from EU rules after 31 December.
“For these reasons, the Commission is unable to complete its assessment of the UK’s equivalence in the 28 areas (under discussion) and will therefore not take any decisions at this time. The assessments will therefore continue,” the official said.
The City Hub in London ensured no special treatment, leaving it on par with arch-rival New York 3,500 miles away as the EU seeks to reduce reliance on UK financial services.
The trade agreement refers to financial services in the same way as the bloc’s other trade agreements, the official said.
Both sides will discuss how they can move forward on equivalence, without stopping any obligation to grant access, Britain said.
The two sides will also aim to agree by March 2021 on a Memorandum of Understanding on regulatory cooperation in financial services. Countries like Canada and the United States already have such cooperation.
“There is some good language about financial services equivalence, perhaps not as much as we would have liked, but it will nonetheless enable our dynamic City of London to make progress like never before,” said the British Prime Minister Boris Johnson.
The UK was unable to replicate its trade deal with Japan, which streamlines paper market access securities and avoids heavy data handling conditions.
“We hope that it (the trade agreement) can form the basis of future cooperation, as independent partners,” said City of London Leader Catherine McGuinness.
Simon Morris, a financial services partner at law firm CMS, said the UK was likely still aiming for a separate agreement covering financial services.
Luxembourg for Finance said the trade agreement should make Brussels more receptive to providing equivalence beyond the 18 months of derivatives clearing and six months of settlement of Irish securities so far agreed.
Without an expansion in derivatives trading, New York is ready to pick up business from London next month.
The UK Treasury, which had no immediate comment, has said changes to the rules will not lower standards. Banks and trading platforms in the UK have opened hubs in the EU to avoid disruption to customers.
“The city must now take its future into its own hands,” said Daniel Pinto, founder and CEO of Stanhope Capital Group.