The U.K. is to begin talks this week with the European Union on how regulators will cooperate over financial services now that Brexit has been completed.
The financial services industry was largely sidelined in the trade deal struck with the EU by Prime Minister Boris Johnson just before Christmas, but the two parties agreed to broker a memorandum of understanding on regulatory cooperation by March.
"We want to preserve financial stability, market integrity and the protection of investors and consumers," Johnson's spokesman, Jamie Davies, told reporters Tuesday. "We did push for a broader agreement on financial services as part of the negotiations, and the Treasury will continue that work with the commission beginning this week."
The industry accounts for about 7% of the U.K.'s economic output, and the country's departure on Dec. 31 post-Brexit transition arrangements threaten the City of London's dominant position in financial services.
The memorandum of understanding is intended to set the framework for regulatory cooperation to allow for "bilateral exchanges of views and analysis relating to regulatory initiatives and other issues of interest," according to a declaration in December by the U.K. and the EU.
It also seeks to establish a process for establishing the adoption, suspension and withdrawal of so-called equivalence decisions that involve the two parties accepting their rules are as strict as each other's, allowing banks and other financial companies to do business across borders.
It's these equivalence rulings that the U.K. is seeking from the EU, after unilaterally issuing a set of its own decisions last year to allow EU financial institutions to keep operating in Britain.
Chancellor of the Exchequer Rishi Sunak and Economic Secretary to the Treasury John Glen will both be involved in the talks, according to the Treasury. The EU granted two big equivalence decisions to the U.K. in 2020 — but with 28 areas still open, it's unclear how much investment banking business can remain in Britain.
The early days of Brexit have already laid bare the stakes, with London losing €6.3 billion in daily stock trades to EU venues on Jan. 4, the first business day after the transition period.
