Hopes for UK-EU financial services equivalence agreement fade

UK chancellor Rishi Sunak has said an equivalence deal on financial services equivalence with the EU has simply “not happened”, so his government is “moving forward” without sealing an agreement. In a Mansion House speech, Mr Sunak said the UK hasn’t achieved its “ambition” to be granted equivalence with EU rules, which would make it easier for its financial services firms, including insurers, to access business in Europe and vice versa. Instead, Mr Sunak said the UK “now has the freedom to do things differently and better”, and added he intends to intends “to use it fully”. But he suggested the UK won’t diverge too much from EU regulatory standards. “The EU will never have cause to deny the UK access because of poor regulatory standards,” he said. “The UK has an abiding interest in a prosperous and productive Europe.” Back in February, head of the Bank of England Andrew Bailey accused the EU of holding the UK to higher requirements than other third countries before granting financial services equivalence, calling on the EU to apply global standards. The EU has indicated it has concerns about how the UK will amend rules that currently comply with EU regulations. The UK is already pushing for reform of Solvency II rules for insurers. Publishing responses to a UK consolation on Solvency II, the UK government said this week that it has collected “compelling” and “extensive” evidence to change “overly rigid” rules, which the country adopted as part of the European Union to regulate insurers since 2010. A quantitative impact study will follow this summer, fronted by the UK’s Prudential Regulation Authority, before reforms are put out for consultation in early 2022 and implemented “as soon as possible”, the UK Treasury said. And earlier this week, the Financial Times newspaper reported that Mr Sunak had brokered an exemption for UK financial services from the proposed new global tax on multinationals at OECD talks. The newspaper, citing sources, said the deal will see the UK’s financial services carved out from the new tax rules in exchange for concessions to the US on the UK’s new digital services tax. All this may lead some to question Mr Sunak’s promise of similar UK regulatory standards as the EU, and lighter-touch regulation could be on the agenda. Without equivalence, the UK and EU will work together on questions of global finance but the UK will set its own priorities, Mr Sunak told the Mansion House audience. “The UK will use our new freedoms to follow a distinctive approach founded on UK law, protected by independent UK regulators, designed to strengthen UK markets,” Mr Sunak said. “We will pursue high-quality regulation because it leads to better markets and [we] will strongly resist its politicisation,” Mr Sunak continued, adding that rules must be followed and enforced. A “sweeping set of reforms” is on the agenda during the next few years to drive the UK’s competitive position in financial services through both regulation and tax, Mr Sunak said. The UK government is currently consulting on reforms to the regulation of wholesale capital markets, as well as Solvency II. Forging deeper international relationships and cooperation with emerging financial centres will be a key step in the UK’s plan, said Mr Sunak. A financial services partnership was recently signed with Singapore and negotiations are taking place with Switzerland.

Hopes for UK-EU financial services equivalence agreement fade

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