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The UK and European Commission have published joint text of their draft memorandum of understanding (MoU) on regulatory cooperation in financial services, in a sign of the thawing of relations between the two jurisdictions.
Since Brexit, it has been clear that both the EU and UK want to forge their own paths on regulation.
The EU has jumped ahead with new rules for bigtech players and crypto-asset service providers, while the UK has mulled moving away from the EU in a bid to make itself more competitive.
For example, in December last year, Chancellor Jeremy Hunt outlined financial reforms including lifting a cap on bankers’ bonuses and easing capital requirements for smaller lenders.
However, the want to cooperate has been evident, both from voices in government and in industry too.
Now, HM Treasury and the European Commission have unveiled their MoU on regulatory cooperation.
“We’re in a good place,” said Mairead McGuinness, the European commissioner for financial stability, financial services and the capital markets union, at an event in London on Monday (May 22).
She is due to meet with central bankers and other officials during her stay in the city.
McGuinness said that this will allow structured dialogue between the two jurisdictions, stating that the relationship will be similar to the one that the EU has with the US.
“The Windsor Agreement has led to a turning of the page and a new chapter in the relationship with the United Kingdom,” she said.
“2016 is a long time ago, and it is good that in 2023 we can say that things are in a much better place,” she continued.
Based on a shared objective of preserving financial stability, market integrity, and the protection of investors and consumers, it is hoped that the new arrangements will provide for, among other things, bilateral exchanges of views and analysis relating to regulatory developments and other issues of common interest.
In addition, the MoU outlines the need for transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions.
There will also be bilateral exchanges of views and analysis relating to market developments and financial stability issues. It also promises enhanced cooperation and coordination, including within international bodies as appropriate.
Although many will see this as a positive, particularly in light of other signs that the markets are moving on from the original shock of Brexit, these are still early days.
“The MoU doesn’t, in itself, improve mutual market access, but it does provide a formal framework for the UK and EU to discuss whether to grant each other regulatory ‘equivalence’ in respect of specific financial services,” said Ben Ruffels, a public policy specialist in the fintech space.
“This could deliver better market access for firms over time.”
Furthermore, Ruffles welcomed that it creates a space for the UK and EU to discuss each others’ regulatory agendas, seek to align on the implementation of international standards, limit opportunities for regulatory arbitrage and avoid unhelpful market fragmentation.
In particular, this will be helpful for multinational companies.
How helpful the new arrangements will be for cross-border payment service providers, however, remains to be seen.
“Both jurisdictions are already in the process of reviewing and updating their regulatory regimes for payments and e-money institutions,” said Ruffels. “It seems unlikely the Forum will be operational in time to meaningfully shape the direction of either of these policy initiatives.”
The new MoU is now moving through the EU’s internal approval processes, but it is anticipated that the European Commission will be able to sign soon.
McGuinness said that the first session could “potentially” take place in the autumn of this year.
“The government looks forward to holding the first meeting of the Forum which is created by the MoU as soon as possible,” said HM Treasury.
