Brussels agrees to sign regulatory co-operation deal with the UK

Brussels will sign up to a deal with the UK to boost co-operation on the regulation of financial services, in a further sign of improved relations following this year’s settlement of the long-running dispute over Northern Ireland trading arrangements.

The European Commission said on Wednesday it had adopted a draft memorandum of understanding that would create the framework for voluntary regulatory co-operation, including the establishment of a joint EU-UK Financial Regulatory Forum. This will improve co-ordination between the two sides and replicate arrangements the EU already has with other major jurisdictions including the US. 

The MOU, which will now need to go to the EU member states for sign-off, was stalled for two years because of the fractious relationship between London and Brussels following the signature of the Trade and Cooperation Agreement that set out post-Brexit trading relations.

It is the latest sign of a thaw between the two sides since they settled the Windsor framework in February in a bid to improve trade between Great Britain and Northern Ireland.

“The Windsor framework allowed the EU and the UK to open a new chapter in our partnership based on a spirit of mutual trust and co-operation,” said Mairead McGuinness, financial services commissioner.

“I am confident that our relationship and future engagement in financial services will be built on a shared commitment to preserve financial stability, market integrity, and the protection of consumers and investors.”

The draft MOU aims to foster exchanges of views and analysis on regulatory developments and markets, boost dialogue when it comes to making equivalence decisions and step up co-operation in international regulatory bodies.

Nicola Watkinson, managing director, international, TheCityUK, a lobby group, said: “The MOU on financial services has been a long time coming and this progress is another positive step forward in building relations between the UK and the EU.”

She added: “We hope it will have a mechanism for engaging industry on discussions relating to regulatory co-operation and look forward to further progress being made.”

But Brussels warned firms the MOU would not in itself improve cross- border access to financial markets.

“The MOU does not deal with the access of UK-based firms to the single market — or EU firms’ access to the UK market — nor does it prejudge the adoption of equivalence decisions,” a commission spokesperson said.

The commission has granted equivalence only to UK-based derivatives houses, which are allowed to continue euro-denominated trading until June 30 2025, while the block builds up its own capacity in the sector.

Finance bosses are lobbying the commission to consider a further extension to this deadline, but Brussels has signalled this would be a decision for after the European elections in summer 2024.

UK Prime Minister Rishi Sunak has sought to strengthen ties with Europe on a range of issues, including the war in Ukraine and co-operation over migration, following years of tension under former prime minister Boris Johnson.

Additional reporting by Laura Noonan in London