Many firms were positive concerning London’s automatic access to EU markets after the UK vote to exit the European Union. However, now that the implementation process has begun the actual realities concerning this have become apparent.
Whilst it was initially hoped that the aim would be to still to retain its current access to the EU market, in her letter to the President of the European Council to trigger the notification Teresa May did not seek continued membership of the single market opting instead for negotiating a limited trade deal in order to avoid a number of concessions that would have to be made to the EU which could undermine the entire reasoning for the exit. Instead an equivalency regime is being sought, but there are fears that unless this is very comprehensive then there is a risk that some sectors might be unintentionally excluded. Another aspect that could cause issues if an equivalency deal is reached is that any domestic changes on either side could remove the equivalency status.
If the UK is unable to negotiate continued access with the EU market under current negotiations then it will be able to engage in the Financial Instruments Directive (MiFID II) like many other third countries firms in order to continue business with EU national markets. This is essentially a ‘passporting’ regime granted provided that the country has met certain conditions. These conditions mean that the country has equivalent regulations to the EU, which the UK played a part in shaping and therefore is expected to meet.
Claims have been made that it is not only the UK that will suffer if agreements aren’t reached prior to the exit, but due to considerable interdependence that member states will also be economically hit as London is the main European financial centre and UK-based financial services account for 40% of Europe’s assets under management and 60% of its capital markets business. Any badly designed deal with the EU could cause widespread financial instability.