What Will Brexit Trade Deal Mean for City of London?

What Will Brexit Trade Deal Mean for City of London?

2020-12-28 07:38:56
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LONDON – Great Britain, which left the European Union in January, will lose full access to the block under transitional arrangements ending at 11pm GMT on December 31st.

The EU of 27 countries is Britain's largest consumer of financial services, worth about £ 30 billion ($ 40 billion) a year. The relationship helped strengthen London's position as one of the world's largest financial centers and as a major contributor to UK tax revenues.

The following describes how the City of London's ability to access the EU market and serve customers in the block will change.

WHAT DOES EU TRADE MEAN FOR THE CITY?

Financial services were not part of the talks on a trade agreement between the EU and the UK and are dealt with separately by Brussels. But the deal agreed on December 24 could enable the EU to give Britain greater access to financial markets in areas such as derivatives trading, even if only on a temporary basis.

WHAT CHANGES IN JANUARY?

From early 2021, general access for UK financial companies to the EU will end and will be replaced by an EU system known as equivalence.

WHAT IS EQUIVALENCE?

This refers to an EU system that grants market access to foreign banks, insurers and other financial companies if their house rules are considered "equivalent" by Brussels, or as robust as the regulations in the bloc.

It is a patchy form of access that excludes financial activities such as retail banking. British banks have already warned customers on the block that their accounts will be closed.

It is a far cry from the ongoing "passporting", or full access, that banks lobbied for in the aftermath of the 2016 UK referendum to leave the EU.

Access under the equivalence system can be withdrawn with one month's notice, making it unpredictable.

IS EQUIVALENCE GRANTED?

With less than four weeks to go, Brussels has so far only granted equivalence for two activities: derivatives clearing houses in Great Britain from January for 18 months and the settlement of Irish securities transactions for six months.

Faced with limited or no direct access, financial firms in London have already moved 7,500 jobs and more than a trillion pounds in assets to new EU hubs to avoid disruption to EU customers.

Trading stocks, bonds and derivatives will be split into less efficient UK and EU pools in January if there is no equivalence. Britain and the EU have agreed that London asset managers can continue to single out stocks for funds in the EU.

Most companies expect that trading in euro-denominated shares will have to leave London on January 4. But there is a lot of lobbying for euro derivatives trading to remain in Britain for some time, and there is a chance that equivalence can still be granted in this regard. area before the end of 2020.

SHOULD EU FINANCIAL ENTERPRISES LEAVE LONDON?

To help preserve London as a global financial center, Britain allows EU companies to stay for up to three years, in the hope that they will apply for a permanent UK license. Britain also unilaterally allows financial companies in the EU to offer certain services, such as credit ratings, directly to UK customers.

Britain will allow UK investors to use stock trading platforms in the block.

WHAT IS THIS ALL ABOUT DIVERGENCY?

Brussels says it has not decided to offer equivalence even wider, as it wants assurance that UK rules will remain similar to those in the bloc, to prevent Britain from potentially gaining a competitive advantage over the EU , and to reduce the EU's dependence on the city for nuclear services. .

Britain has said it will not apply some of the EU rules it inherits, will amend others, such as insurance capital standards, and will introduce its own version of current European regulations for investment firms.

It has also embarked on a major regulatory overhaul and aims to make the listing rules more friendly to attract tech companies from around the world.

Britain insists it will not lower standards and abide by rules agreed at the global level.

WILL BREXIT END THE GOVERNMENT OF LONDON AS THE BEST FINANCIAL CENTER IN EUROPE?

For now no. London still has a huge lead over rivals Frankfurt, Milan and Paris when it comes to trading stocks, currencies and derivatives and hosting asset managers.

Financial firms say moving more capital out of London than needed under Brexit would lead to unnecessary and costly market fragmentation.

But in the longer term, if the EU takes a tough stance on equality and its financial centers reach critical mass when trading major asset classes, London's appeal as a financial center would diminish.

($ 1 = 0.7523 pounds) (Reported by Huw Jones; edited by Catherine Evans and Rachel Armstrong)

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