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Britain and EU strike financial services cooperation pact

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Key Points
  • Britain's finance ministry said the two sides have agreed terms on a "Memorandum of Understanding" that will set the conditions for how regulators from the EU and Britain share information.
  • However, Brussels has said the MoU will not automatically lead to Britain's large financial industry being able to sell a wide range of products and services to EU clients again.
A view of the City of London on a clear day.
Vuk Valcic | SOPA Images | LightRocket via Getty Images

Britain and the European Union agreed a new post-Brexit financial services pact on Friday that will allow them to co-operate on regulation but does little to improve the City of London's access to the bloc.

Britain's finance ministry said the two sides have agreed terms on a "Memorandum of Understanding" that will set the conditions for how regulators from the EU and Britain share information.

However, Brussels has said the MoU will not automatically lead to Britain's large financial industry being able to sell a wide range of products and services to EU clients again.

Industry experts said while the framework was useful, it was unlikely to rekindle anything like the kind of access banks and brokers had to the EU before Britain left the bloc.

Brexit has already put a dent in Britain's financial industry and a City of London official has described the framework as a "talking shop".

"This is unlikely to offer solid foundations for bulk cross border business," said Simon Morris, a financial services partner at law firm CMS.

In January, more than 6 billion euros in daily share trading left London for Amsterdam, along with swathes of trading in derivatives.

In a further potential blow to Britain's financial services might, Brussels is now considering forcing the clearing of euro swaps, still dominated by the London Stock Exchange's LCH arm in London, to move to the bloc.

Friday's MoU agreement is similar to what the EU already has with the United States for arranging regular, informal and non-binding meetings of financial regulators to discuss new rules and air any disagreements.

So far, the EU has declined to grant any long-term direct access for financial firms from Britain, saying this week that it was in no rush.

"Overall, for investors in UK financial services, a greater degree of cooperation between Europe and the UK can only be seen in a favourable light," said Alan Custis, head of UK equities at Lazard Asset Management.

"But it still feels as though the UK needs to continue to plough its own furrow in case there is a change of heart."

Jonathan Hill, a former EU financial services commissioner, said this week that Britain should not sit around for access, known as equivalence, but focus on making the City more attractive to international investors.

"Achieving a form of equivalence with the EU is essential but it should not detract us from the real challenge: making London and other financial capitals in Europe more competitive relative to the fast growing US and Asian markets," said Daniel Pinto, chief executive of Stanhope Capital.