The European Union and the United Kingdom on Tuesday signed an agreement, long-awaited for by London, to boost cooperation on financial services.
The agreement will establish a forum through which the two sides will discuss voluntary regulatory cooperation on financial services issues.
Jeremy Hunt, the British finance minister and Mairead McGuinness, European Commissioner for financial services, signed the Memorandum of Understanding (MoU) in Brussels.
McGuinness told reporters that although the UK is no longer in the EU, "we still share many of the same issues and challenges like fighting financial crime, supporting sustainable finance and enabling digital finance. So it's really positive that we've had this structured cooperation in place."
Hunt, meanwhile, said the UK is "absolutely delighted" with the MoU. "We also see it as an important turning point. We have a shared interest in global financial stability.
"The UK is the biggest financial services sector in Europe and we have a particular responsibility to work closely with the EU to make sure that both sides are doing more, to make sure that we have that stability that is so important.
"We see this very much as not the end of the process, but the beginning," he added.
The aim is for the forum to meet bi-annually with the first meeting scheduled in the autumn.
A spokesperson for the European Commission stressed however that the forum "does not restore UK access to the European Union".
The financial services sector is hugely important for the British economy with the sector contributing £173.6 billion (€201 billion) in 2021, equivalent to over 8 per cent of total economic output.
The country's exit from the EU, finalised in January 2020, had stoked fears that London's place as a leading global hub for financial services could be weakened by more restricted access to the EU.
But the impact has been more muted than anticipated as key regulatory frameworks, including equivalence for central clearing activities used to mitigate financial risk, have so far remained in place
The European Commission has already stated that it wants to have more clearing activities take place in the EU in order to end an over-reliance on UK-based services.
According to the British government, of the £11 trillion (€12.8 trillion) of assets managed in the UK in 2020, around 44 per cent was on behalf of international investors including the EU.
The new deal was described as "a welcome building block" by Elizabeth Budd, financial services partner at law firm Pinsent Masons, because it will "allow parties to exchange views and better understand the other’s position."
She also stressed that the MoU "identifies matters that will be in the remit of the Forum including the sharing of information on regulatory developments which will allow for a timely identification of potential cross-border implementation issues as well as considering issues on potential or actual market fragmentation."
Matthew Nunan, Partner at law firm Gibson, Dunn & Crutcher, meanwhile, said that "this MoU opens the door for the UK regulators to re-engage with EU counterparts, without committing either side to actually doing anything."
"There are some real benefits to global harmonisation of standards – it makes it cheaper and easier for multi-national firms to comply with one set of rules across the world. The MoU provides the platform for the UK and EU to work together on shaping those cross-border standards.
“Although the MoU has been long in the drafting, I suspect it has been given additional urgency by the recent banking problems. Where intervention is needed to prevent widespread, cross-border problems, regulators and governments need to have frank and open discussions – this MoU lays the groundworks for that," he added.
The MoU will also allow Brussels and London to boost dialogue and cooperation on joint challenges and ahead of key international meetings including the G7 and G20.
It is the latest sign that relations across the Channel have thawed since a deal was struck in February to resolve tensions over the Northern Ireland Protocol, which had poisoned ties for three years.