Britain and the European Union are set to miss their end-June deadline for assessing future cross-border trade in financial services, leaving just six months before a potentially messy UK exit, financial industry and EU officials say.
Britain left the EU in January and complies with the bloc’s rules until the end of December in return for continued full access for financial firms.
Future direct EU access will depend on whether Brussels deems UK regulation to be “equivalent” to standards in the bloc. The EU and Britain agreed last year they would make “best endeavors” to complete the assessments by June 30.
“It’s a long, slow process and no one is rushing to finish them by the ‘official’ target date,” a senior official at an international bank said.
Britain has repeatedly said the assessments should be a formality, given that it has put all EU rules into UK law.
However, the EU’s assessments go beyond checking if Britain’s rules are currently equivalent, to asking whether the UK intends to diverge from EU norms in future, raising a major strategic issue, an official at a UK financial firm with EU operations said.
UK finance minister Rishi Sunak said on Tuesday that comprehensive findings of equivalence were in the best interests of both parties, but also indicated there would be some changes to UK rulebooks, pleasing some Brexit backers who want to use Britain’s departure to change regulation.
Without equivalence, financial firms in Britain would be cut off from the EU market and have to open hubs in the bloc to continue serving customers there.
A European Commission official said the EU executive had sent questionnaires to British authorities covering 28 areas.
“The UK has not yet answered most of the questionnaires,” the commission official said.
“Assessments are also challenging because equivalence assessment will have to be forward-looking, taking account of overall developments, including any UK intention to diverge from EU rules,” the commission official said.
“This is why we need clarity on how the relevant UK rules will evolve after Jan. 1, 2021.”
The EU has said it will only take a decision on actual access once it is fully satisfied with the assessments.
It mirrors the slowness of progress in separate UK-EU talks on a free trade agreement.
Sunak on Tuesday began setting out how Britain will regulate the financial sector beyond December, flagging that it wants to make changes to parts of insurance capital rules inherited from the bloc, which could make equivalence problematic, and amend consumer disclosure rules.
“We will analyze the UK’s texts and discuss them with the UK authorities in the overall context of our equivalence assessments,” the commission official said.
Britain’s finance ministry had no immediate comment.
(Reporting by Huw Jones; editing by David Evans)