United Kingdom (U.K.) has taken decision to exit from European Union (EU), but smooth exit seems difficult. Prime Minister Theresa May needed to get all ministers on the same page and determine how negotiations will take place. The decision to exit EU has worried almost all the industries across the world. Companies have been planning to shift their headquarters in countries that are part of EU. The U.K. needs to establish their relationship with other countries across the globe to attract investment and build trade ties. The most important part of the exit is negotiations with EU. The decision on whether to change the financial terms with EU remains one of the significant among all the decisions taken after the exit.
After the U.K. rejected the latest negotiating guidelines by outlining them as “wholly inadequate”, the EU has been considering providing “improved” financial equivalence. It is not defined what this “improved” means. The U.K.’s bid to have access for its banks in the EU based on mutual recognition of rules has been rejected by EU. The U.K. institutions will have a right to trade in EU only if British rules are considered equivalent by EU. This equivalence means acceptance of rules without any contribution in making them. The U.K. government and banks reject this way.
According to the draft obtained by Bloomberg, “Regarding financial services, the aim should be reviewed and improved equivalence mechanisms, allowing appropriate access to financial services markets, while preserving financial stability, the integrity of the single market and the autonomy of decision making in the European Union.”
The draft also says EU defined and implemented equivalence mechanisms and decisions on a unilateral basis. The additional financial equivalence is in the annex of draft guidelines. It will be discussed by EU ministers in the meeting. The earlier draft did not outline financial services explicitly. However, the draft highlighted that the trade agreement that EU intends to propose will not make any special provisions for the U.K. The banks and government of the U.K. have given up hopes to regain passporting rights. These rights enable single market access that provides permission to trade across borders. The U.K. government and banks have been trying to form a system of mutual recognition and set up rules that would be durable, without being subjected to unilateral withdrawal.
Chancellor of the Exchequer Philip Hammond outlined that a proposition which sets up the city of London as a financial hub for both the U.K. and EU will be favorable for both sides. He also opined that any trade deal excluding financial services would not be fair. Any agreement made between two sides needs to be “reliable” and “reciprocal.” EU argued that the decision of the U.K. to leave a city stops EU from choosing the city from a country that is part of the union. The financial stability of EU will be at stake along with integrity of the single market. The details on improved financial equivalence will be out in next few days and it is interesting to find out what they will be.