LONDON — The U.K. and the European Union have yet to find a solution for the financial services industry after Brexit, and recent data suggests that Brussels may have the upper hand in negotiations.
It’s been a key topic of debate after the U.K.’s vote to leave the European Union in 2016. The City of London, the U.K.’s business district, wants access to the European market, given that it represents a significant part of its activities. On the other hand, the City is also a vital source of financing for European businesses.
However, Brexit has inevitably changed this relationship. By leaving the EU, the U.K. has lost access to the EU’s free flow of people, goods and services and that impacts how financial services operate.
European financial hubs, rivals to London, have benefited in the weeks after the U.K. ended EU rules on Dec. 31. The Dutch capital Amsterdam, for instance, has registered a surge in the amount of trades it books. A chunk of euro-dominated financial products has also been completed outside London.
“The shift in share trading in EU-listed names from the U.K. to the Netherlands was certainly unprecedented in its size, and the fact that it all happened overnight on the fourth of January. But it wasn’t unpredicted,” David Howson, president of the pan-European equities exchange CBOE Europe, told CNBC’s “Squawk Box Europe” on Wednesday.
The EU and the U.K. agreed to work on their financial services relationship in the early part of 2021. However, there’s widespread opinion that Europe will not recognize the U.K. rules as equivalent to their own, which would constrain the ability of U.K.-based firms to trade more freely in the bloc.
“I see no likelihood of an equivalence deal,” Howson said.
“There is certainly no incentive for the European Commission and ESMA (European Securities and Markets Authority) to look towards providing equivalence given the share of trading that has now moved, as we said, pretty much permanently to Europe,” he added.
Bank of England Governor Andrew Bailey said earlier this month that it would be a “mistake” if the EU decides to block the City of London in any way.
“The EU has argued it must better understand how the U.K. intends to amend or alter the rules going forwards. This is a standard that the EU holds no other country to,” Bailey said in a statement.
However, the EU argues that without understanding how the U.K. will proceed with financial regulation, it cannot recognize them as equivalent to their own.