Mar 16, 2021
Market alignment has been a source of contention post-Brexit and continues to be the subject of ongoing debate. The UK is planning to rework its financial rulebook to prevent its capital from losing its position as a global financial center. In turn, this undermines the possibility of a deal with the European Union, negating the prospect of a rapid equivalence decision.
Experts call into question whether the UK is diverging from the original plan to gain market alignment with the EU or if it is instead working towards a new competitive goal.
German politician and member of the European Parliament, Markus Ferber, has stated that the EU is unlikely to grant equivalence while the UK’s financial services framework is so uncertain. “The UK government must be aware that such a move would dramatically reduce the chances of a swift equivalence decision,” Ferber said.
His comments came in response to those made by John Glen, the UK’s Economic Secretary. In an interview, the MP explained that the government has a plan to introduce wider reform to capital markets, which is something businesses would be consulted on in the upcoming months. The proposal will review market structure, transparency rules, and commodities. According to Glen, the government is looking to make the plan “as broad and as inclusive as possible,” with the core aim being to reduce costs and burdens for companies without sacrificing the high standards of regulation.
Other experts in the financial field have been quick to point out that by reviewing these rules, the UK is highlighting the fact that it aims to compete with the EU, not cooperate with it.
The government’s proposal to reconfigure the financial rulebook is causing any post-Brexit alignment to move further down the agenda. London’s prime objective has been to secure equivalence with the EU in good time, but progress continues to be slow.
The UK previously granted the EU equivalence in 17 areas, but the latter has since only reciprocated in two. Delays have become a major source of frustration, and Glen’s comments were the most recent indication that the UK is likely to forge its own path instead.
Going it Alone
Should the UK plan to move forward without an equivalence decision, London-based financial firms still wishing to do business inside the EU will be faced with numerous challenges. Working with the EU without market alignment will bring with it complex and costly consequences required to support operations in both the UK and the bloc.
However, the value of equivalence is being called into question. Not only by John Glen’s comments but by the similar remarks made by Andrew Bailey, who holds the position of Bank of England Governor. Instead of looking for ways to create an equilibrium, the UK is giving the impression that it has moved past this and is instead looking to go it alone. Replacing its original approach with “a strategy of fierce competition for business,” according to Ferber.