Financial Services Regulation Commence between U.K, EU

January 28, 2021

Talks are slated to commence between the EU and U.K over regulation of the financial service sector since Brexit has now taken effect. A largely overlooked factor during Brexit negotiations, the U.K and EU instead elected to draft a Memorandum of Understanding to enact a regulatory framework by March. 

According to Bloomberg, U.K officials were in preparation of negotiations in mid-January and the U.K’s Chancellor of the Exchequer, Rishi Sunak, and Economic Secretary to the Treasury, John Glen, are both expected to be involved.

“We want to preserve financial stability, market integrity and the protection of investors and consumers. We did push for a broader agreement on financial services as part of the negotiations, and the Treasury will continue that work with the commission beginning this week.”

The U.K seeks to strike an agreement over “equivalence” decisions with the EU, enabling financial institutions to conduct business seamlessly across borders. As an offering of peace, the U.K similarly issued its own equivalence rulings in 2020, allowing EU finance service companies to maintain operations in the country without issue. The EU, however, is not keen on maintaining London’s dominance in financial services, aiming instead to decentralize the sector’s infrastructure.

Since late December, the new Brexit deal has created even greater distance between the U.K and EU, “with both sides trading free of tariff and with new bureaucracy for importers and exporters.” The limited flow of markets and less trade further illustrates the waning access of London’s financial sector into European markets.

What it All Means

With that, Britain may depart from EU regulations, enabling the nation to sign free-trade deals with the US. But there is the potential threat of penalties were the EU to lift regulatory standards while the U.K refused, especially if there was proof of economic harm.

In the past year, the U.K has also witnessed a mass exodus of FinTechs (many have elected to move to Dublin, Luxembourg, and Paris).  And there remains the continued threat of the pandemic on London’s financial services

The U.K’S Financial Conduct Authority (FCA) cautioned of its recent pandemic resiliency survey, which estimated close to 4,000 finance sector businesses lacked resiliency and were at major risk of collapse.

“We are in an unprecedented — and rapidly evolving — situation. This survey is one of the ways we are continuing to monitor the potential impact of coronavirus on firms [and]… a market downturn driven by the pandemic risks significant numbers of firms failing.”

Want to learn more? Check out PYMNT’s full write-up of the Mastercard press release here.

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