Nick Collier / Nov 2023
One of the positive consequences of the Windsor Framework was that it unblocked the signing of an EU-UK MOU and the establishment of a bilateral EU-UK regulatory dialogue. The TCA contains almost nothing on financial services apart from this commitment. The first meeting of the new EU-UK Regulatory Forum was held in London on 19 October.
Expectations in industry that the dialogue will somehow reopen the issue of mutual markets access ignored by the TCA are unrealistic. But the Forum is important to us in the industry because it offers hope that the two sides can build trust that could allow for improved access in future in specific areas, and that they can align as much as possible on new areas of regulation thereby minimising further regulatory fragmentation.
Such regulatory dialogues outside formal trade discussions on services are not a new idea - the EU and UK both have formal dialogues with Japan following their respective trade deals, and the EU and UK both have informal dialogues with the US. But it will, in my view, be the first time for a dialogue between two partners with such similar industries, financial services rules, and with officials and regulators who know each other so well. So it is right that the Forum should be more ambitious than any other.
That said, this is also the first bilateral dialogue following a difficult divorce. So we need a dose of realism. And to recognise that trust takes time to build. There is still some unhelpful rhetoric on both sides. The European Commission and some member states accuse the UK of wanting divergence and deregulation and bristle at talk of a post-Brexit dividend in financial services. The UK Government and regulators resent EU attempts to apply strategic autonomy arguments to financial services, particularly in wholesale capital markets where the UK has traditionally been so dominant.
Reports of the first meeting are positive. The communique contains nothing unexpected. Both sides predictably ran through their own extensive regulatory agendas, as you would expect from busy bureaucrats. There was evidently polite interest in sharing best practice - both sides are working on financial literacy and deepening capital markets for example. And the two sides collaborate well in international regulatory forums like the G20 and G7. The UK claim they did also discuss some issues of market access under the heading of equivalence, but it sounds like this was in general terms rather than specific areas like clearing derivatives, where the Commission regards the matter as now in the hands of the co-legislators working on EMIR. The second meeting will be in Brussels in April.
So how should the Forum progress and deliver a more ambitious outcome over time? I think there are two strands to this. One is on process. It would be good to see industry input for example. Neither side is frankly content with the TCA and would like to see better access as well as alignment in areas like sustainable finance. On the UK side, we fed in quite detailed views from the International Regulatory Strategy Group. It would also be welcome to see parliamentary support for the dialogue, perhaps in the joint parliamentary assembly. Could the leading committees on each side not invite each other once a year? And I also find significant interest in member states - prodded no doubt by firms who still want access to global markets in London. Why not have finance ministers meet annually too?
The second strand is on substance. It seems to me the two sides could go further in cooperating on issues of financial stability. There was apparently a good discussion at the first Forum, but also signs of differing views on the risks posed by non-bank financial intermediaries like asset managers and hedge funds. We also see an incredibly strong case for more formal cooperation on sustainability and rules for transition finance.
Both sides should embed recognition for each other’s rules in areas like disclosure, taxonomies, and data to avoid disrupting vital cross border investments in decarbonisation. And thirdly, both sides have much to gain from close cooperation on digitisation and innovation, on topics such as cryptocurrencies and stablecoins, tokenisation and distributed ledger technology (DLT) as well as on ongoing work on Central Bank Digital Currencies (CBDCs)
So we are off to a good start, but there is much more the two sides can achieve with a shared positive and ambitious mindset. It would finally be good to see financial services feeding into the wider TCA review due to start quite soon. Some see this as a purely technical implementation review, but it would again be good to see more ambition that puts corporates and investors at the heart of improved market access.