Brussels has opened the door to closer co-operation on the regulation of financial services with the UK in a sign that easing political tensions after a deal on Northern Ireland could unlock other disputes.
A “memorandum of understanding” on regulatory issues has been stalled for two years because of the fractious relationship between the two sides.
But a senior EU official indicated that Brussels was now willing to sign the MoU after the two sides agreed to the Windsor framework to improve trade between Great Britain and Northern Ireland.
“It would require some discussions with the UK. For us, it is just a question of ‘one thing at a time’,” he added. “We will turn to the MoU on financial services soon.”
There was no timeline yet, the official added, but the deal on the Northern Ireland protocol provided an opportunity to exploit the “full potential” of the trade and co-operation agreement between the two sides.
British government insiders said they had not been contacted by the EU about the MoU, but added that any move forward would be welcomed. A Treasury source said: “We want to progress the MoU, and welcome renewed and positive momentum on the EU’s side’’.
The MoU was agreed in March 2021 but its signing has been held up by disputes between London and Brussels over post-Brexit trading arrangements in Northern Ireland. It will establish a joint UK-EU financial regulatory forum, a platform for regulators to resolve financial services issues.
The MoU is also expected to become the framework for discussions on how to move forward with any future equivalence determinations, which would recognise UK regulation as matching EU rules.
The text of the unpublished MoU is unlikely to change, EU officials say. But EU members will have to approve it before signature. The Treasury said that building a constructive relationship would benefit both the UK and EU financial markets.
Financial services executives hope that the Windsor framework struck this week will mark a wider reset for EU-UK relations.
Miles Celic, head of TheCityUK, the industry group, said he expected the deal to “unlock a number of connected issues that were caught up with the Northern Ireland deal such as the memorandum of understanding on financial services”.
He added: “We think it’s very encouraging. Financial services was impacted by unrelated politics over Ireland but now we can progress the economic and commercial side which will benefit both the UK and EU.”
British ministers have also indicated to City bosses in meetings in recent weeks that a Northern Ireland deal was expected to unlock talks in areas such as financial services, according to one person involved in the talks.
Executives said they hoped that the government would use this week’s agreement to improve trading arrangements for UK financial services companies seeking business in the EU.
The commission has granted an “equivalence decision” in only one sector, allowing UK-based clearing houses to serve EU customers until June 30 2025.
Chris Hayward, policy chair at the City of London Corporation, which governs the Square Mile, said: “With this resolution I welcome the chance for UK financial services to once again engage productively with our partners in the EU for the benefit of both our economies.”
City minister Andrew Griffith, responding to a Financial Times question over whether the Northern Ireland agreement would unlock closer sector co-operation, said: “Our financial services strategy is to have the best possible relationships with all of the major capital markets where firms seek to do business.”
Griffith said he would be in Berlin this week. “And my message will be that the United Kingdom wants to have high-quality regulation. It does not seek to diverge for divergence’s sake, but also that the interests of every large player who seeks to access the capital markets are in minimising friction, not in erecting new barriers.”
Brussels has already indicated that the Windsor framework will unlock other contentious areas, including allowing full UK participation in European research programmes like Horizon Europe.
European Commission president Ursula von der Leyen said she was happy to begin negotiations over Horizon Europe “immediately” after the Windsor framework was implemented.
But there is little appetite for improving market access for the UK’s competitive financial services sector, which was left out of the Brexit trade deal.
Mairead McGuinness, EU financial services commissioner, said in March 2021 just before the MoU was concluded that it would be a “flexible non-binding framework similar to what we have with the United States”.
“The purpose will not be to restore market access rights that the United Kingdom has lost because of Brexit, nor will it constrain the EU’s unilateral equivalence or regulatory process.”
The commission declined to comment.
