The European Union has currently been offering temporary access to the UK’s markets with the suspension of rules set to end in June next year. However seven trade bodies including the European Association of Co-operative Banks, the European Banking Federation and the Global Financial Markets Association have warned this represents a “cliff edge”. The move is likely to further undermine Brussels as negotiations continue over financial services post-Brexit. In the letter the groups warn not extending access would leave the sector facing: “significant financial and risk management impact as well as other burdensome compliance requirements”.
The group are particularly concerned about maintaining access to London’s lucrative derivatives market.
Derivatives are financial products involved in a wide variety of areas from mortgages to insurance with the letter warning sudden restrictions on trading could see damage to markets and cause financial instability.
UK groups such as financial lobby group TheCityUK have long been calling for access to be maintained however today’s letter highlights the value of London’s markets to EU firms.
The groups explain that current access terms are allowing EU markets to remain competitive and without this there would be significant “collateral cost to EU firms”.
Such collateral costs would include prohibitive operating costs and restricted ability to operate in international markets.
The letter also highlights the importance of other non-EU markets such as Hong Kong, Singapore and Australia.
So far the European Commission has refused to give equivalence status to the UK’s derivates market which would give EU businesses free access to trade here.
The move has been seen by many as political with most of the UK’s financial rules since Brexit largely staying in line with the EU’s.
However it came with a warning from financial services commissioner Mairead McGuinness that the EU intended to make itself more “more competitive and cost-efficient” in a bid to attract more businesses to its own markets.
The EU Commission has previously said it believes there is an “over-reliance” on UK financial services such as clearing and derivatives trading.
Governor of the Bank of England Andrew Bailey has previously warned that the EU may attempt a power grab and try to pull more market activity away from London.
Speaking earlier this year he cautioned the bloc may “attempt to force and cajole banks and dealers to say there will be some other penalty for you unless you move this clearing activity”.