By Eurasia Business News – December 28, 2020
View on Britsh pounds – Photo credit – Pixabay
The post-Brexit trade deal finally found on December 24 after four years of negotiations, what will happen to the London’s financial services? The future of the City of London is not recorded in the text regulating the coming relations between the United Kingdom and the European Union after December 31. But even if the City has long thought it could preserve the rights given to it by the “European passport”, which allows it to process transactions in euros, that will change. Negotiations are in fact continuing in parallel, and until March 2021 to define a memorandum of understanding regarding the financial sector.
Even outside the European Union, the City of London intends to remain a major financial center. Moreover, the approach of the December 31 deadline did not lead to the much-announced exodus of financial executives.
“The City has a future”, said British Finance Minister Rishi Sunak on Sunday :
“Now that we have left the European Union, we can do things a little differently and we will get down to it. For example, by examining how to make the City of London the most attractive place for new businesses around the world. ”
Rishi Sunak recalls that the agreement also provides for a stable regulatory framework which guarantees to continue to dialogue closely with European partners.
“I think that should reassure everyone, as does the fact that we have an ambitious vision for the City of London and the financial services of the country in general. “
From December 31, the City will be considered as part of a jurisdiction of a third country. What is being negotiated is preserved access for British financial institutions to European markets through the system of equivalences. Through this system, the EU ensures that the regulations of the British partners are at least as strict as its own.
The Bank of England (BoE) said in a report released on December 11 that major UK banks were strong enough to endure both the coronavirus crisis and the consequences of Brexit.
For the BoE, while “Most risks to UK financial stability that could arise from disruption to the provision of cross-border financial services at the end of the transition period have been mitigated”, it does not exclude, after December 31, a certain “market volatility and disruptions financial services, in particular for EU-based clients […].”
The British banking regulator added that “Market volatility could be reinforced in the event that some derivative users are not fully ready to trade with EU counterparties or on EU or EU-recognised trading venues. Financial institutions should continue taking measures to minimise disruption.
British banks loose European passport
The UK-EU Trade and Cooperation Agreement (TCA), negotiated by Brussels and London to regulate their relationship after December 31, 2020, does not contain provisions or financial services firms in the UK to access the single market.
As a result, starting on January 1, the British banks will no longer be allowed to sell financial services and products to customers based in the European Union without the right banking licences.
Previously UK banks have used a system known as passporting, which allows banks to trade freely in another other country in the European Economic Area (EEA) without the need for more authorisations.
But this EU banking passport system will no longer be in place for British financial entities after January 1st, so banks have been left needing to ensure they meet the rules for every EEA country’s regulators. As reported Bloomberg, that has allowed Dublin, Frankfurt, Amsterdam and Paris to start chipping away at London’s statuts as Europe’s financial center.
Since some banks may decide it is not in their commercial interests to continue providing banking services for British expats working in the European Union, it may be useful for them to check with their bank to see whether they are affected.
Britons who have been living in France before December 31, 2020 will not need a work permit, including if they change employers after the end of the transition period. Only those who settled in France as of January 1, 2021 will be subject to the obligation to apply for a work permit.
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