What the EU is offering the City – and how it compares with other countries

Political whims have replaced the single market – shallow and incomplete as it might have been – in cross-Channel trade in financial services.

Britain has agreed a wide range of EU businesses can serve UK customers, declaring their regulatory regime to be “equivalent” to ours in 17 areas.

But the EU is being much cagier in returning the favour, allowing only two equivalences.

The “equivalence” setup is standard practice in its treatment of external nations, and should be based on technical considerations, allowing it to work smoothly given most developed economies subscribe to the same set of global rules, albeit with some local tweaks.

So how does this cold shoulder for the UK compare with Brussels’ treatment of other countries?

Andrew Bailey, Governor of the Bank of England, thinks other countries have been allowed much more flexibility, despite the UK’s rules being pretty much identical to those of the EU, warning that only small changes to the rules could cut off British firms.

“It would be reasonable to think that a common framework of global standards combined with the common basis of the rules – since the UK transposed EU rules from the outset – would be enough to base equivalence on global standards,” he said.

“Less than this was enough when Canada, the US, Australia, Hong Kong and Brazil were all deemed equivalent.”

Swathes of US rules on the capitalisation of insurance companies, regulations of trading in shares and derivatives, investment firms’ operations and audit requirements are deemed equivalent by Brussels, allowing EU-based institutions to do business across the Atlantic.

It means EU stocks can be traded on US exchanges, even when the same courtesy is not extended to UK markets.

This does not mean it is always plain sailing, however.

EU investors were suddenly blocked from directly trading on Swiss stock exchanges when Brussels revoked its equivalence status in 2019, for instance – a step which can be taken with as little as 30 days notice, making this a fragile system.

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