It was a fight that lasted four long years, since the British voted overwhelmingly in favor of separating from the European Union (EU). From that moment, the negotiators of the United Kingdom and the EU did not stop discussing the different chapters of the agreement that they have not yet signed, less than a month after the final separation, which may not be such because the British government has the possibility to request an extension. In this very long game of poker, the financial sector played a key role, mainly on the British side, because it is the one that has the most to lose in an unfriendly divorce.
But even though the government of Boris Johnson has been threatening during much of the negotiation led by David Frost (Michel Barnier is his counterpart on the European side), at the beginning of November he had to give in and acknowledge that he was going to continue accepting part of Community financial regulation to avoid a collapse in the post-Brexit stage.
What was at stake at the beginning was the unrestricted access of banks and other British entities to the European continent to sell their financial services, a market that is still too inviting to let go. In fact, when the referendum to remain in the EU was held in June 2016, the majority vote of the City of London was against separation.
But now that it is already known that the jackpot is lost, and that many companies in the sector have moved part of their operations to the continent to preserve privileged access, there is no other choice but to resort to traditional English pragmatism and accept « swallow some frogs. » One of them is to accept that the United Kingdom will continue to recognize some of the European financial regulation, and that there will be no reciprocity from the EU. These standards cover areas such as bags, insurance, short selling, etc. and the Union uses them to accept financial products from other non-EU countries.
The only thing that the European Commission recognized as British regulation was clearing houses. « We had no other option on this issue. Europe does not have the capacity to function without the British clearing houses, » acknowledged Nicolas Mackel, director of the consultancy Luxembourg for Finance.
It was the British Finance Minister, Rishi Sunak, who anticipated this unilateral measure by his government, in a presentation before Parliament, in addition to commenting on other details about the reorganization of the domestic financial sector from 2021, when the final separation will be has been made.
« Our objective was to make these decisions in a consensual manner with the EU, but now it is clear that they do not want it that way. In the absence of clarity from the EU, we decided to act unilaterally to provide certainty to companies established in the Kingdom. United and in Europe, « said the official.
And he added: « The Treasury is going to publish a document with the details of the British proposal regarding financial equivalences with other countries, » in aspects such as short selling, accounting standards, etc.
Faced with complaints from City companies, which feel postponed by other issues that dominate the negotiating agenda such as trade or fishing, Sunak announced that the government is going to create a commission to propose reforms in the current trading system of companies on the London Stock Exchange, as a way to « attract the most innovative and successful companies. »
At the forefront
But where the British government does intend to be at the forefront in financial matters is in everything related to the environment. Companies must report their level of exposure to global warming as of 2025 (from January 1, 2021 it will be optional), with the aim of accompanying the country’s « green transition » towards a neutral carbon footprint in 2050.
Furthermore, in June 2021, the Bank of England will begin conducting its climatic resistance tests on the country’s banks. « These investments will create green jobs and give new vitality to the regions of the country, » said the prestigious London School of Economics.