Pound jumps as Britain, EU near Brexit deal on financial services

Return to sender: The UK and the EU are on song for a financial services agreement. (AFP)

• Britain’s Brexit ministry said progress was being made on reaching a financial services deal
• Many top bankers fear that Brexit will slowly undermine London’s position as the world’s biggest international financial center

LONDON: A deal giving London, the world’s largest center of international finance, basic access to EU financial markets after Brexit is nearly done, a British official said.
Such a deal would give the UK a level of access to the EU similar to that of major US and Japanese firms, while tying it to many EU finance rules for years to come.
“We are making progress,” the official, who spoke on condition of anonymity, told Reuters.
But the official said the financial services deal would be based around the EU’s existing “equivalence” system — far short of the deep and preferential post-Brexit market access that many have been hoping for.
Another British official said that while there was progress, nothing was finalized yet.
The financial services deal was part of the overall Brexit deal that Prime Minister Theresa May hopes to strike by the end of the year at the latest, the second official said.
Britain’s Brexit ministry said progress was being made on reaching a financial services deal, while the European Commission had no immediate comment.
Many top bankers fear that Brexit will slowly undermine London’s position as the world’s biggest international financial center, and a Reuters survey found that, so far, just over 600 are moving away. Global banks have already reorganized some operations ahead of Britain’s departure from the EU, due on March 29.
The Times newspaper reported that a tentative deal had been reached on all aspects of a future partnership on services, as well as the exchange of data. The pound jumped following the report, extending gains in early trade to reach $1.2914.
Britain is currently home to the world’s largest number of banks and hosts the largest commercial insurance market.
About €6 trillion ($6.82 trillion) or 37 percent of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris.
In addition, London dominates Europe’s €5.2 trillion investment banking industry.
Since Britain voted to leave the EU more than two years ago, some of the world’s most powerful finance companies in London have been searching for a way to preserve the existing cross-border flow of trading after Brexit.
The tentative deal being discussed falls far short of that.
Currently, inside the EU, banks and insurers in Britain enjoy unfettered access to customers across the bloc in all financial activities.
Equivalence, however, covers a more limited range of business and excludes major activities such as commercial bank lending. Law firm Hogan Lovells has estimated that equivalence rules cover just a quarter of all EU cross-border financial services business.
Supporters of Brexit had hoped that leaving the EU would allow them to dispense with EU rules on financial services, such as caps on bankers’ bonuses, to turbocharge London as a financial hub.
Britain’s Financial Conduct Authority said on Wednesday that UK financial rules should stay aligned with those in the EU after Brexit, a basic condition for Brussels to grant equivalence.