Key hurdles in the Brexit negotiations on financial services and future regulation in the UK

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This article reviews the key hurdles in the Brexit negotiations on financial services as they came into sharp focus at the end of June 2020. Although the Political Declaration between the UK and the European Union signed in October 2019 clearly sets out the path of the future trading relationship in financial services based on equivalence (i.e. the granting of market access to (certain) financial services by both parties on the basis that their regulation of financial services is broadly equivalent to each other), the British and European approaches to the implementation of equivalence in a future free trade agreement are very different, and are in many ways mutually incompatible. From this point of view, the impasse reached in early summer concerning financial services reflects the broader problems of the UK and the EU reaching a free trade agreement by the end of 2020, and perhaps even for a considerable while later. While “Monty Pythonesque” horse-trading of giving UK-based financial services access to EU markets in exchange of access to British fishing waters by EU fleets cannot be ruled out entirely, the odds of not reaching agreement in financial services are shortening. This will lead to stronger competition between the UK and the Eurozone in the development of financial services, although a dash to de-regulation by the UK seems unlikely. Instead, the London market is more likely to seek a competitive edge by designing future regulation that is both more stringent but also more “stylish”.