Amidst the challenging economic picture facing Rishi Sunak’s government, from mortgage rates to food inflation, any potential good news story has been seized upon by Downing Street. The latest of these came on Tuesday with the announcement from the Treasury that Chancellor of the Exchequer Jeremy Hunt had signed an agreement on post-Brexit regulatory cooperation with his counterpart on the EU Commission, Mairead McGuinness.
As a signal of intent for those within the industry, this is undoubtedly a positive step – indicative of a thawing of relations and a commitment to regulatory cooperation that will be critical if the City is to move on from the temporary arrangements that have hung over the sector for the last few years. It is also a clear reflection of the Government’s desire to woo industry leaders ahead of the next General Election; a charm offensive being mirrored by Shadow Chancellor Rachel Reeves MP and her team. Reassuringly for the City, this is one area of policy in which businesses and investors can expect a degree of continuity – Labour have been consistent in calling for a deepening of ties between the UK and EU on financial services in particular.
Amongst other things, the deal includes a commitment from both sides to work to improve transparency; reduce uncertainty; solve cross-border regulatory issues; and where appropriate, improve interoperability of standards. There is enough meat on the bone here to shape conversations with regulators and use as a springboard to push for the all-important conversations around UK-EU market equivalence.
That said, it’s important not to overstate the deal as it stands. While key players have welcomed the direction of travel, nearly all of the praise has been tempered by the fact that an announcement of this ilk has been long overdue – and still fundamentally amounts to an agreement to talk to one another.
The new Forum is committed to meeting “at least” twice a year. With the current arrangement on equivalence set to expire in June 2025, you would expect that regulators – along with their political masters – would need to meet much more frequently than the minimum 4-5 sessions mandated in the MOU in order to hash out what would amount to a landmark regulatory agreement.
Moving from voluntary cooperation on these relatively small-scale issues to a broader agreement on UK-EU equivalence remains the ball game, though. This leaves significant room for industry to inform policy and regulatory decisions going forward. We know from our research that MPs particularly value both data and consumer case studies when considering their views on financial services policy or regulatory reform.
Demonstrating where closer cross-border alignment will help achieve party economic growth ambitions will be critical – as well as how industry can help drive the UK’s global economic competitiveness. This will help strike the right chord between the regulation-light approach of the Tories and Labour’s focus on consumer outcomes.
Overall, Tuesday’s announcement was an indication that with 2 years remaining of temporary equivalence, the government is keen to pursue closer alignment with Europe on financial services. How this will be received by the harder-line MPs within the Conservative Party will be one to keep an eye on going forward – but given that this is a position shared by Labour, it will provide welcome continuity for the markets and industry.
With the signing of this MOU and the Financial Services and Markets Bill about to become law, an important window of dialogue between regulators on both sides of the Channel is about to open up. There’s a long way to go before the long-term future of UK-EU financial services is decided, and it remains a critical time for industry to be engaged in the process.