UK set to sign deal with EU on financial services regulatory co-operation

UK chancellor Jeremy Hunt will on Tuesday sign a deal with the EU on regulatory co-operation on financial services, in a fresh sign of improving relations between the two sides.

The memorandum of understanding creates a forum for the EU to discuss regulatory issues with the UK relating to financial services and the City of London.

The EU already has a similar framework for considering regulatory matters with the US.

Hunt’s visit to Brussels is the first by a British chancellor for more than three years and reflects warmer relations between the UK and EU since the signing of the “Windsor framework” in February, which resolved a bitter dispute between the two sides over Northern Ireland’s post-Brexit trading arrangements.

Finalising the memorandum of understanding on financial services had been snarled up for two years because of the acrimony that followed the signing of the UK-EU Trade and Cooperation Agreement that set out post-Brexit relations.

By itself the new deal will not improve UK financial services companies’ access to the EU market. Clearing is the only area where the EU has granted the UK so-called regulatory “equivalence” in the aftermath of Brexit, albeit on a temporary basis. It means the City’s clearing houses continue to handle euro-denominated derivatives business until the middle of 2025.

Hunt said: “The UK and EU’s financial markets are deeply interconnected and building a constructive, voluntary relationship is of mutual benefit.”

He will meet Mairead McGuinness, the EU’s financial services commissioner, and will also hold talks on issues including trade, economic security and the bloc’s “green deal” industrial plan.

Chris Cummings, chief executive of the Investment Association, the trade body for UK investment industry, said the signing of the memorandum of understanding was an “important milestone”.

“Now the [memorandum of understanding] has been confirmed, all focus must now turn to ensuring the joint forum on regulatory co-operation delivers a pragmatic, forward-looking dialogue focused on finding common solutions to common challenges,” he added.

Hunt is also expected to discuss Britain’s attempt to rejoin the EU’s €95bn Horizon science programme, which has become bogged down in a dispute about money.

Negotiations over the UK’s “associate membership” of Horizon, outlined as part of the Brexit trade agreement, were initially stalled by the row over Northern Ireland’s trading arrangements.

This row is now resolved, but Hunt is demanding a significant discount on Britain’s participation fee in Horizon to take account of two lost years: the EU research programme runs from 2021 to 2027.

Additional reporting by Sam Fleming in Brussels