Downing Street has quashed speculation that a Brexit agreement has been reached on financial services, after an overnight report that a tentative deal had been struck caused the pound to soar briefly.
No 10 sources said no deal had been agreed, although the government added in a statement that it continued “to make good progress reaching new arrangements for financial services”.
The remarks came after reports that the two sides had agreed to give UK banks access to European markets as long as British regulation remained broadly equivalent to the EU’s.
Quick GuideWhy is London the world's leading financial hub?
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Why is London the world's leading financial hub?
London is seen as the world’s leader in financial services, mainly due to language, time zone and a business-friendly regulatory framework. It is the world’s biggest market for foreign exchange trading, and the second largest for fund management.
London’s global prominence increased following Margaret Thatcher’s 'Big Bang' reforms in 1986, which relaxed regulations in the City. The UK’s capital received another boost when Wall Street firms had to comply with the Sarbanes-Oxley Act of 2002, passed after the collapse of Enron to strengthen corporate governance, which prompted many foreign firms to list on the London Stock Exchange instead.
The English language gives London an edge over other European financial hubs such as Frankfurt and Paris. The time zone also helps, as the City's business hours overlap those of Asia, America and the Middle East. Good transport links and a vibrant culture are also commonly cited as making London attractive to foreign banks and other firms. The question is whether London can retain its crown after the UK’s planned departure from the EU on 29 March 2019.
Responding to the reports at a briefing for reporters, the prime minister’s official spokesman said: “When the BBC choses to lead its bulletin on a speculative [Times] page 14 news story, it is time for everybody to take a deep breath.”
There is considerable frustration in No 10 that the Times report gained traction overnight when the BBC decided to lead early morning news bulletins on it. Officials said everybody needed to calm down when reporting on the status of the Brexit negotiations.
In a rare public comment on a press report, the EU’s chief negotiator, Michel Barnier, tweeted: “Misleading press articles today on #Brexit & financial services. Reminder: EU may grant and withdraw equivalence in some financial services autonomously. As with other 3rd countries, EU ready to have close regulatory dialogue with UK in full respect for autonomy of both parties.”
The prime minister’s spokesman said: “Our objective is go beyond existing EU equivalence regimes and agree a new economic and regulatory partnership with the EU over financial services.
“This will be based on the principle of autonomy for each side over decisions regarding access to its market, with a bilateral framework of commitments to underpin the operation of the relationship, to ensure transparency and stability and promote cooperation.”
However, the EU has consistently said it will not give the UK a special deal for its financial services sector, insisting the system that works for US companies wanting to operate in the European market should be good enough for the City of London.
Barnier said over the summer that he was open to consultations between regulators on either side of the Channel over regulatory changes. Brussels is also changing the terms of its equivalence regime, under which service providers in a non-EU state are permitted to operate in member states.
But the EU has not engaged with UK negotiators on the changes and Brussels is opposed to any attempt to prevent the EU from unilaterally blocking companies in the City of London from operating on its territory.
Earlier, No 10 insiders had suggested it was “very premature” to be talking about the future trading relationship, but did not deny the future of financial services was being discussed. Others dismissed the reports as “unsubstantiated rumours”.
In addition to the withdrawal agreement, both sides are looking for a deal on a high-level declaration of intent that will form the basis for a political statement on the future partnership, to be voted on by MPs. The legal and technical details will be hammered out after Britain leaves the EU in March.
With five months left to secure a deal, anxious business leaders are demanding more clarity over the trade terms the divorce will deliver.
On Thursday, Theresa May told a group of chairmen and chief executives of large European industrial companies that her principal concern was getting her Brexit deal through parliament, according to one of those present. She told them that she needed to conclude the Brexit negotiations in the next “two or three weeks” and that she was confident of doing so.
But she warned that securing the consent of MPs remained a hurdle, particularly given that a version of her Chequers plan to keep the UK in a common rulebook for food and goods after Brexit, which is hated by the Tory right, was still on the table.
Industrialists present said they wanted the UK to remain as close as possible to the status quo of British membership of the EU and described the meeting as largely constructive. Those present at the meeting of the European Round Table of Industrialists included the BP chair, Carl-Henric Svanberg, as well as Iain Conn, chief executive of British Gas owner Centrica, and Leif Johansson, the chairman of Anglo-Swedish drugs company AstraZeneca.
Many global banks have reorganised UK operations, setting up European hubs and beginning to move staff to ensure they can continue to serve continental clients if the UK leaves without a deal.
The UK’s banking regulator wants Britain to stay closely aligned with the EU but without having to copy all the bloc’s rules, according to the Financial Conduct Authority’s acting director of strategy, Richard Monks.
The prime minister’s Europe adviser, Oliver Robbins, is continuing negotiations in Brussels, and Downing Street sources have privatively indicated they hope the Brexit talks will be concluded in November.
However, the two sides are yet to agree on an appropriate backstop to avoid a hard border in Ireland if no free-trade deal can be concluded by the end of the transition period in December 2020.