By Huw Jones
LONDON -Britain’s finance ministry has called on the European Union to open talks on financial services after the London Stock Exchange urged the bloc to avoid a retreat into protectionism.
Britain left the EU in December, largely cutting off the City of London’s financial services centre from the bloc.
Banks and other financial firms that used London as a gateway to Europe have set up units in the EU to avoid disruption for EU clients. Billions of euros in daily euro stock and derivatives trading have already left London for the EU.
Both sides have agreed to start a dialogue via an informal forum for discussing financial rules but it has yet to go live.
“We really hope that that is expedited because once that memorandum of understanding is agreed we can get on with establishing our routine ways of engaging,” Katharine Braddick, director of financial services at Britain’s finance ministry told TheCityUK’s annual conference.
The forum would put the UK’s relationship with the EU on a “reliable, transparent and understandable footing” to give business certainty, she said.
The European Commission said internal work on approving the forum was ongoing.
The forum will not decide on financial market access, but it is viewed as critical for rebuilding relations after a tense Brexit divorce.
A pressing issue for Britain is that EU permission for the London Stock Exchange to keep clearing euro derivatives for EU customers expires in June next year, potentially fragmenting a major market.
The Commission is asking banks and asset managers how quickly they can shift trillions of euros in derivatives clearing from London to Deutsche Boerse in Frankfurt and if legislation is needed.
The EU wants to directly supervise euro clearing and bolster its “strategic autonomy” to avoid reliance on the City in financial services.
“I think it’s critically important for the EU to remain open and to resist the protectionist temptation,” London Stock Exchange Chief Executive David Schwimmer told a separate European Financial Services conference.
“What has made the EU so successful is its openness to the world and being able to embed itself in global ecosystems.”
EU firms should be able to access the same liquidity, services, data and technology capabilities as their peers in respect to clearing, Schwimmer said.
“I am not arguing for an absence of control by the EU over important strategic areas,” he said, adding: “I really hope that the dialogue and cross border access that we have today can prevail going forward.”
With Britain no longer tied to EU rules, it is reforming how it regulates the City of London to buttress its global competitiveness.
Braddick said this would mean tailoring rules to the UK market within a framework of global standards, and not ripping up the rulebook.
“Any idea there is some vast philosophical gap about risk appetite or financial regulation is really misplaced,” Braddick said.
The UK finance ministry will make detailed proposals for wholesale financial market reform in the final quarter of this year.
“We have not seen a flood of either talent or capital out of the UK into the European Union,” Braddick said.