Britain and the European Union have moved a step closer to a post-Brexit deal for the City after reaching a deal to create a forum for cooperation on financial services regulation.
The memorandum of understanding sets the terms of engagement between the two parties but does not yet grant the City of London access to the EU’s Single Market. It must be agreed by the EU’s 27 member states.
Technical discussions have been concluded but some formalities still need to be completed before it can be signed.
The Treasury said it expected the formal step could be taken “expeditiously” and would establish the Joint UK-EU Financial Regulatory Forum, “which will serve as a platform to facilitate dialogue on financial services issues”.
Miles Celic, of lobby group TheCityUK, said the memorandum was an important first step for financial services because it will formally keep dialogue open with Brussels and act as a “launch pad” for future cooperation.
The deal could raise hopes that talks between regulators will convince Brussels to grant market access, which is referred to as equivalence.
The European Commission has been accused of stonewalling the UK, which has not yet made major changes to its pre-Brexit rules, to convince firms to onshore back to the Continent.
Brussels refused to make any provision for financial services in the trade deal signed by the UK and EU in December last year. The commission made clear access would be governed by equivalence, which is similar to how US firms are cleared to operate in the bloc.
Equivalence can be withdrawn unilaterally by either side with as little as 30 days notice. Brussels has shown a willingness to use it as a political weapon, freezing Swiss stock exchanges out of the Single Market in a bid to force Bern to renegotiate a treaty.
The EU has also said it will not grant equivalence until it has details of the UK’s plans to diverge from EU financial rules now it has left the bloc.
However, banking insiders have largely given up any hope of being granted equivalence. One banker said that conversations with EU officials suggest there will not be movement on equivalence in the near future.