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The much anticipated publication of the Memorandum of Understanding (MoU) marks a milestone for the relationship between the UK and the EU with the establishment of a forum for financial services regulatory cooperation. But what tangible difference will it make to financial services firms operating across both sides of the channel? What might it deliver in the future, and where should we expect UK-EU discussion to focus first?
Building bridges
Although a long time coming, the publication of the MoU reflects the improved political relationship between the UK and EU, with the potential for a more balanced and sure-footed foundation between UK and EU authorities on financial services ahead. Similarities between this MoU and the existing Terms of Reference in place between the EU and United States could be indicative of this more promising future relationship.
But it is not a silver bullet. Financial services firms operating on both sides of the channel are still facing challenges such as reduced market access, regulatory divergence and increased costs since Brexit. The hard yards to deliver substantive outcomes from this cooperation have only just begun. Unlike the UK’s Free Trade Agreement Regulatory Cooperation Annex agreed with Australia, the UK-EU MoU text is less explicit on pursuing mutual regulatory compatibility, meaning progress to address questions on equivalence may be slow.
It is unlikely then that financial services firms will see tangible benefits from the MoU in the short term.
“Nevertheless, steps to rebuild a state of trust and open dialogue between UK and EU authorities is certainly a good starting point.”
A packed agenda
With the UK’s desire to kickstart this dialogue promptly, what is likely to be on the Forum’s agenda? Similarities with the existing UK-US and EU-US regulatory dialogues may provide some early clues.
Post-Brexit issues still linger and are likely to top the agenda. These include the question of UK central counterparty equivalence beyond June 2025 and how the EU may seek to further drive euro denominated clearing activity onto the continent.
As too would the UK and EU’s suite of capital markets reforms, with both sides having significant ground to cover on everything from Wholesale Markets Review, Basel 3.1 implementation, aspects of Capital Requirements Directive VI aimed at international banks, and the European Central Bank’s desk-mapping review.
While managing post-Brexit divergence issues will rightly take much attention in the short-term, the future success of the Forum is likely to be built on its ability to generate meaningful cooperation on the forward-looking regulatory agenda. Digital assets, AI, operational resilience, and sustainable finance are the focus of many international regulators and policy officials, and will likely form part of the Forum’s discussions. Close cooperation to align, or minimise fragmentation across UK and EU regulatory and supervisory frameworks in these areas will be important for any firm doing business between the UK and EU in managing their long-term operating model.
Industry will play a crucial role in guiding officials and regulators on where the UK-EU Forum should focus in both the short and long-term. While progress may not be immediate, the promise of more structured and constructive discussions between authorities can only be a positive outcome.
