City of London unlikely to get broad EU access, says UK banking body

LONDON (Reuters) - The European Union is unlikely to grant broad access for the City of London, and the flight of euro share trading from Britain to the bloc is permanent, UK bankers said on Monday.

FILE PHOTO: A general view of London is seen from the construction site of 22 Bishopsgate in London, Britain June 25, 2019. Picture taken June 25, 2019. REUTERS/Hannah McKay

Britain left the EU’s single market and customs union on Dec. 31 and a trade deal agreed by both sides does not cover financial market access, which is being handled separately.

Last Monday more than six billion euros ($7.3 billion) in daily euro share trading in London shifted overnight to platforms in the EU, in the first sign of Brexit’s impact on the City.

Conor Lawlor, director for Brexit at UK Finance, said the EU was unlikely to grant “unnecessary” access to the City, given it wants to reduce its reliance on Britain.

“This is the beginning of market fragmentation... Where do those additional costs begin to land over time?” Lawlor told parliament’s Treasury Select Committee.

“I don’t see the particular movement of shares that has left the UK returning.”

Barney Reynolds, a financial services lawyer at Shearman & Sterling, said the EU would see how much financial activity it could prise away from London before providing clarity on market access.

Britain and the EU executive the European Commission, aim to thrash out a memorandum of understanding (MoU) by March on regulatory cooperation, a step London hopes will unlock market access.


In a separate hearing in the European Parliament, Almoro Rubin de Cervin of the European Commission’s financial services unit, said the MoU would allow both sides to compare notes, just as the bloc already does with U.S. regulators.

“The purpose will not be to secure market access rights. Secondly the framework will not be designed in a way that would constrain the EU equivalence process,” de Cervin said.

The EU unilaterally grants market access if it deems that financial rules in a non-EU country are “equivalent” or aligned sufficiently to those in the bloc.

But Britain wants to diverge significantly from some EU rules and the bloc is also reviewing its regulations, thereby presenting two “moving targets” to make decisions on equivalence a challenge, de Cervin said.

If Britain also makes “excessive demands”, such as calling for constraints on equivalence decisions, then it could take longer than March to reach agreement on an MoU, he added.

The EU has already granted temporary equivalence in derivatives clearing and settlement of shares, and de Cervin said the bloc would follow due process for other areas.

“What we need to do is set up a cooperation framework and discuss with the UK in each equivalence area to what extent that mutual alignment can remain in place,” de Cervin said.

($1 = 0.8218 euros)

Reporting by Huw Jones; Editing by Gareth Jones