Brexit panic: City gripped by no deal fears and bracing for financial ‘regulatory warfare’

Brexit panic: City gripped by no deal fears and bracing for financial ‘regulatory warfare’

The latest round of negotiations between the two sides in Brussels ended a day early last Thursday with “significant differences” remaining in a number of key areas. One of these is the continued disagreements over access to each other’s financial markets once Britain fully leaves the bloc at the end of the transition period on December 31, 2020. Last week, the EU’s chief Brexit negotiator Michel Barnier accused the UK of trying “to keep as many single market benefits as it can” following Brexit.

He warned there is “no way member states or the European Parliament would accept” the UK’s bid for smooth access to European markets for London’s financial district.

Finance bosses are now bracing for “regulatory warfare” with Brussels as the clock ticks down to the end of the transition period in just under six-months’ time.

A failure to reach an agreement could see firms in the City lose access of European markets overnight and find themselves unable to serve their clients throughout the continent from London.

Jon Moulton, the veteran financier who founded the private equity firm Better Capital, told Financial News a failure by the two sides to strike a trade deal could lead to “regulatory warfare with unpredictable, but mostly adverse effects that will be the new normal”.

Sean Tuffy, head of market and regulatory intelligence at Citigroup told the same publication “the likelihood of a no-deal Brexit has now increased” following the latest deadlock in negotiations.

He added: “Firms will likely be dusting off their contingency plans and operating under the assumption there will be no or limited equivalence.”

Political and financial experts are also expecting a no deal Brexit outcome at the end of the year, with analysts at Berenberg putting a 60 percent chance on negotiators switching focus to “limit the immediate economic and social disruptions”.

Sarah Hewin, chief economist for Europe and the Americas at Standard Chartered, believes there is only now a 50 percent chance of a trade deal being agreed.

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She said: “Deadlines for reaching an agreement on financial services equivalence and extending the transition period have elapsed, and with COVID-19 still taking up much of the political and bureaucratic bandwidth of policymakers on both sides, time is tight for a new UK-EU trading arrangement to emerge by the year’s end.”

Michael Cole-Fontayn, chair of the Association for Financial Markets in Europe, warned “time is running out” to secure a Brexit deal before the end of this year.

He said: “That’s why we are urging the EU and UK to put in place equivalence determinations and address regulatory challenges as soon as possible to minimise disruption to markets and businesses which will need time to adapt their processes and technology.

“This is even more important in the current economic environment, where firms and their clients are facing the ongoing effects of COVID-19.”

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A senior unnamed Government affairs official at a global bank in London told Financial News the current impasse in trade talks would accelerate banks’ planning for “the worst type of Brexit”.

The official also warned increasing fears of a no deal Brexit will encourage firms to move more of their staff based in London to locations throughout the EU.

Nigel Green, chief executive and founder of financial advisor the deVere Group, said: “The risk of a no-deal Brexit for the UK, EU and global economies remains a key headwind.

“The UK Government has so far not withdrawn from its threat to walk away without a trade agreement in place, despite the mass financial disruption caused by the pandemic.”

Xavier Rolet, the former chief executive of the London Stock Exchange, told Financial News: “The simple fact that four years into Brexit, major financial infrastructure businesses are still in the dark about the future framework seems ample evidence that business planning considerations do not rank at the top of policymakers’ priorities.”

The UK and EU will resume trade deal talks in London on Tuesday after last week’s negotiations in Brussels were cut short, triggering fears of a no deal scenario.

Britain’s chief Brexit negotiator David Frost warned the trade talks have continued to highlight “significant differences” that remain on several elements of any future agreement.

Brussels counterpart Mr Barnier insisted the EU had engaged “constructively” during post-Brexit trade talks in Brussels, and warned officials need to see an “equivalent engagement from the UK side”.

Angela Merkel, who’s country Germany took over the rotating presidency of the European Council on July 1 and is home to the EU’s largest economy, also warned the bloc’s member states to “prepare for the case that an agreement is not reached”.

Published at Mon, 06 Jul 2020 11:12:00 +0000