The London Stock Exchange Group has welcomed a thaw in relations between the UK and the European Union, following an agreement on disputes over Northern Ireland. LSEG does not
expect its clearing arm to be cut off from EU customers from June 2025, when existing permission for London-based clearing institutions to continue serving EU customers is due to end. The European Commission has drafted a law to put pressure on EU-based banks and asset managers to move clearing of three types of derivatives from LSEG and ICE in London to the EU. However, there is no indication that all UK-based clearing must move, easing fears among market participants of a "cliff edge" in June 2025.
LSEG Chief Executive David Schwimmer has stated that the messages that have come out of the EU and the European Commission make him "fairly confident" there will not be a cliff edge in 2025. He also pointed out that LSEG customers in the EU have made it "increasingly clear" they want continued access to clearing in London. The improvement in tone is making him "optimistic and hopeful" that this will continue to play out well.
The financial industry sees an agreement between the EU and the UK to create a forum for EU and UK financial regulators to talk on a regular basis as a key to warmer relations. This could eventually reverse the near exclusion of UK financial services from the bloc since Brexit. An improvement in relations between the EU and Britain is a "good thing" for markets, Schwimmer said.
The EU is still the UK's biggest export market for financial and related professional services. In the first nine months of 2020, UK financial services exports to the EU fell by 10.2% compared to the same period in 2019. The main reasons for the fall were the impact of the Covid-19 pandemic, the end of the Brexit transition period and increased uncertainty over the UK's future trading relationship with the EU.
The UK has started discussing regulatory cooperation on financial services with the US, Japan and Switzerland. The talks aim to enhance the regulatory and supervisory cooperation between the UK and these countries, while retaining the UK's regulatory autonomy. The UK government is committed to maintaining its position as a world-leading financial centre, and these discussions will help achieve that aim.
The UK and the EU will also discuss financial services at the end of March. The talks will focus on regulatory cooperation, market access and equivalence determinations. Financial services are not part of the current trade deal, but the EU has said it is open to granting UK financial services equivalence if it is in the EU's interests to do so. The UK is seeking more extensive access to EU markets than equivalence would provide.
Overall, the London Stock Exchange Group's optimistic outlook is good news for the UK's financial services sector. The sector is a vital part of the UK economy and continued access to EU markets is crucial for its success. The improvement in relations between the UK and the EU is a positive step, but there is still much to be done to ensure the UK's financial services sector remains competitive and able to compete on a global stage. Photo by Kaihsu Tai, Wikimedia commons.