Brexit financial services deal talk moves pound higher
The pound rose sharply on Thursday on reports that Britain and the EU have reached an agreement on trade in financial services after Brexit, although the suggestion that a deal has been finalised was downplayed in London and Brussels.
British and EU officials have been locked in talks for months on how to ensure that the EU’s “equivalence” regime works for both sides after Brexit, given the primacy of London as Europe’s leading financial centre.
British prime minister Theresa May has accepted that services — including financial services and data — would be outside the free trade area that she wants to create for goods and agriculture after Brexit in her Chequers white paper in July.
The Times newspaper reported on Thursday that a deal had been done on the application of “equivalence” to ensure a stable relationship between the EU and Britain on financial services after Brexit.
Mrs May’s aides said that the report came as “a surprise”.
“There’s a big difference between having constructive talks and declaring deals have been done,” said one.
Equivalence rules make it easier for non-EU financial institutions to operate in the single market if the European Commission decides that their home country’s financial regulations are as tough as the EU’s own.
Britain has called for “enhanced equivalence” that would require each side to consult the other before withdrawing access and provide a safeguard to make sure that “existing contracts can be fulfilled even if access is withdrawn”.
But British companies would lose their privileged “passporting” rights, since equivalence offers a lower form of access.
On Wednesday, the pound rose sharply after Brexit secretary Dominic Raab told parliament he expected a deal to be agreed before November 21, when he next expects to update the Commons Brexit committee.
The pound continued to rise on Thursday morning — up as much as 0.7 per cent against the dollar — after the reported deal on financial services.
The idea of a deal on financial services would appear to be jumping ahead to the second phase of Brexit talks — negotiations on a future trade deal — which will only begin in earnest after Britain leaves the EU next March.
Mrs May wants a “precise” political declaration on the future shape of a trade deal alongside the UK’s withdrawal treaty, but Brussels officials say this declaration is currently only in skeletal form, constituting only a few pages.
Nevertheless, there is a growing mood of optimism in London that a Brexit deal is close and that there is still a prospect of securing an agreement at a special European Council meeting in mid-November.
Brussels officials are far more pessimistic; the special summit has not been called and EU officials say they are “flabbergasted” that some senior figures in London believe an overall exit agreement is close to being agreed. EU negotiators are open to accelerating talks and calling a special Brexit summit for the bloc’s leaders later in November.
Chief whip Julian Smith has told colleagues he wants to move quickly to bring a Brexit deal before the Commons for approval by MPs.
“He wants it done and dusted by Christmas,” said one MP briefed by Mr Smith. However, the parliamentary arithmetic is perilous for Mrs May.
Senior Tories fear that between 20 and 30 Conservative MPs could vote against any Brexit deal in the Commons, meaning she might need the support of an equivalent number of Labour MPs to secure approval for her deal.
In his letter, Mr Raab said the EU had accepted Britain’s proposal for a so-called backstop arrangement that would avoid the return to a hard border between Northern Ireland and the Irish Republic after Brexit.
“We agree on the principle of a UK-wide customs backstop,” he wrote, referring to Britain’s plan to keep the whole of the UK — including Northern Ireland — in the EU customs union after Brexit until a final trade deal with the bloc is in place.
The EU has insisted on a separate “backstop to the backstop” — a legal undertaking that Northern Ireland would remain part of the bloc’s customs and regulatory sphere if all else fails.
One person close to the Brexit negotiations said outstanding issues were “very difficult” but both sides had an interest in agreeing the withdrawal treaty that would see Britain leave the EU next March.
George Parker in London and Alex Barker in Brussels