The City can only benefit from improved relations between the UK and the EU. As the leading financial centre, the Square Mile should push for even stronger cooperation with EU partners, writes Chris Hayward
Just recently, ambassadors from across the EU’s 27 member states hailed the strong and strengthening relationship between the UK and the EU. This is in stark contrast to the situation just one year ago, when the EU was initiating legal proceedings against the UK.
Russia’s invasion of Ukraine last year brought into focus just how many interests and values we have in common with our EU allies. A new approach by the government to negotiations with the EU on Northern Ireland has also helped remove the major stumbling block in our relationship, replacing a source of protracted dispute with an agreement which both sides see as an improvement.
The Windsor Framework was warmly welcomed in the City for this reason. With this resolution, there is an opportunity for UK financial services to once again engage productively with our partners in the EU for the benefit of both our economies.
It’s an opportunity we must seize. Working together on sustainable finance in particular is essential for all of us, given the shared environmental and energy security challenges which we face. This is top of the agenda on my visit to Luxembourg this week, where I am discussing green finance solutions with the Luxembourg Sustainable Finance Initiative. Tackling the climate challenge will be at the top of the agenda when I meet representatives from government, regulators and the central bank.
Both sides need to build on the progress made so far. I wholeheartedly agree with the House of Lords European Affairs Committee’s recent call to see this as a reset in UK-EU relations and look at improvements to the relationship across the board.
From the City’s perspective, we can approach this reset in a spirit of confidence, as London remains Europe’s leading financial centre and has much to offer – something which is appreciated by many of our European counterparts. Our global financial centre benefits Europe as a whole, supporting businesses and consumers across the continent.
We urge both governments to get on with signing the Memorandum of Understanding (MOU) agreed two years ago. This will enable the UK and EU to establish an ambitious bilateral financial services dialogue. Such a dialogue will pave the way for strengthening supervisory cooperation through data sharing and electronic reporting and crucially, collaboration in financing the green transition. This will take time and won’t remove all issues overnight, but it will get us out of a state of limbo, putting us on the right track.
One other critical issue is whether London’s clearing houses will continue to serve customers in the bloc. In 2020 the London Stock Exchange’s clearing house handled more than 90 per cent of interest-rate derivatives, denominated in euros. These interest-rate swaps are widely used by businesses to protect themselves against unexpected changes in borrowing costs. The current arrangement is expected to end in 2025; an extension would be a win-win for both sides.
But we can go further than the memorandum of understanding. The EU-UK Trade and Cooperation Agreement (TCA) leaves the issue of financial services to the MOU to cover. When the TCA comes up for its five-year review in 2026, the City will be pushing for better coverage of financial and professional services in particular.
With our relationship with the EU thawing, we as a country are in a much better place than last year. The renegotiation of the Switzerland trade deal is evidence of that. This new deal will strengthen our services trade relationship with a huge market whose bilateral trade is worth over £35bn annually to the UK. An enhanced trade agreement should also address cross-cutting issues including mobility, data flows and digital trade.
Further improvements will take time, but UK financial services must press forward now while the momentum is there for even closer UK-EU cooperation. The City must speak up and help shape the future of our continent.
