A major chunk of trading in euro-dominated shares has been moving from London to European continental exchanges since the beginning of the week, after the U.K. left the European Union single market, and the two sides are now headed toward uncharted confrontation over the future of European finance.
Financial services were not covered by the post-Brexit trade deal struck just before Christmas between the U.K. and the EU, and U.K. Prime Minister Boris Johnson has admitted that the deal “perhaps [did] not go as far as [he] would like” on the matter.
On Jan.1, U.K. financial services providers and banks lost the so-called passport that gave them the right to operate without restrictions throughout the EU, and now depend on unilateral decisions from European authorities to extend them an “equivalence” decision based on regulatory convergence, sector by sector.
Billions worth of share trading have moved this week from London to exchanges set up in Amsterdam and Paris, to the tune of about £6 billion ($8 billion) a day.
Bank of England Governor Andrew Bailey told U.K. lawmakers on Wednesday that he did not expect quick equivalence decisions from the EU, but insisted the country should not become “a rule taker” by mimicking EU regulations just for the sake of obtaining an access to European markets.
Looking ahead. The U.K. and the EU have pledged to negotiate a “memorandum of understanding” by March to sort out the rules under which financial players could operate in each other’s markets. The EU seeks to repatriate business and jobs, and London wants to keep its financial might without having to abide by EU regulations.
But pledging to negotiate isn’t the same as pledging to strike a deal. The only hope is that the talks, most likely led by bureaucrats and civil servants, won’t be as politically weighted as the long negotiations over the trade deal last year. That should in theory make some form of agreement easier, even though the two sides’ respective interests remain at odds.