Brexit agreement leaves UK financial services operating under no deal scenarios

UK and European flag together

Tej Patel, Partner and Regulatory Practice Lead at Capco, comments on the continued uncertainty facing UK-based financial services firms post-Brexit.

Given that financial services were not within the scope of the new UK-EU trade and cooperation agreement (TCA) UK-based financial services firms lost their passporting rights as of January 1 and – with no concrete progress as yet around equivalence determinations – they consequently face significant uncertainty as we move forward into 2021. 

While the TCA does provide a way forward for UK-based firms to continue to provide services into the EU, this is currently entirely at the discretion and requirements of each member state. As a result, UKbased firms are effectively now operating under their no deal/hard Brexit scenarios.

Amid a more complex and expensive negotiating environment with EU states, equivalence looks to be the way forward for firms. However, while equivalence is included within the fourth (‘Potential EU unilateral measures’) of the four pillars of cooperation set out in the TCA, there are many outstanding areas of equivalence that remain unresolved between the UK and EU.

Furthermore while the Joint Declaration – non-binding, it should be noted – that sits alongside the TCA commits the UK and the EU to future cooperation around financial regulation, the Memorandum of Understanding that will facilitate this cooperation is not set to be finalised before March 2021. Efforts to address these areas of concern will be a challenge for the UK government as they have yet to determine detailed plans for future regulation, putting financial services firms in a ‘catch-22’ scenario.

The EU can withdraw equivalence determinations by giving 30 days’ notice, something we saw in 2018 when the EU was unsatisfied with the direction of travel or progress made by Switzerland. This is clearly detrimental to investor confidence.

The EU has granted temporary equivalence only to UK clearing houses, and this is purely due to the sheer volume (trillions of dollars of derivative contracts per day) which currently flows through these venues. That said, this does provide some kind of platform to build towards future regulatory equivalence and cooperation between the UK and EU.

“As financial services adjust to the new post-Brexit environment, addressing the gaps left by the TCA are of vital importance. It’s critical for supervisory bodies to remember the productive and close working relationship which has existed with the UK for so many years. A renewed focus on this positive relationship will be key to delivering much needed equivalence decisions in a timely manner, as the priority has to be market stability, protection of investors and detection of abuse/manipulation.”

This Week’s Most Read

  • Baronsmead VCTs exit first sterling unicorn after Ideagen sale

    Gresham House’s Baronsmead VCTs have exited their stake in compliance software business Ideagen following its sale to private equity firm Hg Capital. The deal values

  • Fund Research Governance: is ‘fine’ good enough?

    Written by Laura Bampfylde, Director, Global Assets – Wealth, at Redington One of the most enlightening books I’ve read was written by husband-and-wife psychologists, Alan

  • ONS: Repossessions by county court bailiffs increase from 45 to 770 (1,611%)

    Following the latest Mortgage and landlord possession statistics published this morning, which reveal repossessions by county court bailiffs increased from 45 to 770 (1,611%) between

  • Creating a profitable HNW/LNW advice service in specialist markets

    By Simon Binney, Business Development Director, Wealth Wizards For financial planning firms targeting new clients, often the problem is not attracting clients to their business,

  • PIMCO: US CPI Preview

    By Tiffany Wilding, North American Economist, and Allison Boxer, Economist at PIMCO  This week focus turns to inflation, where recent commodity price weakness will become

  • #Podcast episode 7: JM Finn’s Sir John Royden on his superhuman swim for The Brain Tumour Charity

    This week’s podcast episode is something a bit different for IFA Talk…but certainly not an episode to be missed! Sue and Bex talk to Sir

  • FCA issues letter to alternative investment firms’ CEOs – experts comment

    The FCA has today issued a six page letter to CEOs of alternative investment firms about their supervisory strategy for such firms. David Newman, chief

  • Tackling Burnout in Financial Services

    Financial services professionals are increasingly suffering with stress which can often lead to burnout – a state of physical and emotional exhaustion. Latest research tells

  • PIMCO’s Tiffany Wilding: The Era of Kinder, Gentler Central Banks Is Over

    By Tiffany Wilding, PIMCO’s North American Economist Last week, the Bank of England (BoE) was the first major central bank to admit that it is

  • Advisers concerned clients are risking HMRC fines over trusts

    Advisers are concerned about their clients risking HMRC fines, by failing to register trusts with the Trust Registration Service (TRS) by 1st September, according to

Latest IFA Magazine Podcast Episodes

Keep updated on the most important financial events 

Make sure you are an informed

wealth professional..

Adblock Blocker

We have detected that you are using

adblocking plugin in your browser. 

IFA Magazine