A deal that would give London’s vast financial services hub basic access to European Union markets after Brexit is nearly done, a British official said.
Such a deal would give the United Kingdom the same level of access to the EU as major U.S. and Japanese firms, while however 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, adding that the financial services deal would be based on the EU’s existing “equivalence” system.
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.
After the shock 2016 referendum vote to leave the EU, many bankers and politicians have been hoping that London could secure a preferential deal to give deep access to the bloc’s markets.
A deal along the lines of equivalence falls far short of that.
It could also upset some Brexit-supporting members of Prime Minister Theresa May’s divided party who see leaving the EU as an opportunity to abandon EU regulation and turbo-charge London as a global financial hub.
Currently, as an EU member, 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.
A financial services deal may be expected if an overall Brexit agreement is struck this month, the official said.
London, which has been a critical artery for the flow of money around the world for centuries, is the world’s largest centre of international finance. While New York is by some measures bigger, it is more centred on American markets.
The pound jumped following the report in The Times, extending gains in early trade to reach $1.2914 by 0855 GMT.
BREXIT AND THE CITY
Global banks operating in the UK have already moved some staff and reorganised some operations ahead of Britain’s departure from the European Union, due on March 29.
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.
Faced with having Europe’s biggest financial centre on its doorstep, the EU has begun tightening conditions for equivalence in areas such as clearing derivatives and investment banking.
Under the current system, Brussels can scrap an equivalence designation within 30 days in some cases – a step it has never taken – and Britain has called for a far longer notice period.
The Times reported that neither side would unilaterally deny market access without first going through independent arbitration and providing a notice period significantly longer than 30 days.
Britain on Wednesday said there was no set date for Brexit talks to finish, backtracking from a letter by Brexit minister Dominic Raab that suggested a deal on the terms of its departure could be finalised by Nov. 21.