The chancellor has travelled to Brussels where he has signed a deal with the EU on financial services cooperation, two years after it was first agreed.
The deal will set out how the UK and EU plan to cooperate on financial services issues in future, but some experts caution to be "realistic" about what the agreement might achieve.
The government has pledged to share information with the EU, work together towards meeting joint challenges and coordinate on issues ahead of international meetings such as the G7 and G20.
Jeremy Hunt said in a statement: "The UK and EU’s financial markets are deeply interconnected and building a constructive, voluntary relationship is of mutual benefit to us both.
"This agreement with our European partners as sovereign equals builds on our arrangements with the US, Japan and Singapore, helping to support the sector’s role as a global financial services hub."
Together with the professional services sector financial services was worth £275bn last year, making up an estimated 12 per cent of the British economy. Of the £11tn of assets managed in the UK in 2020, about 44 per cent is on behalf of international investors including the EU, the government said, showing the relevance of this deal.
But Gavin Haran, head of policy for asset management at Macfarlanes, cautioned: "This is a positive step but we have to be realistic about what the agreement does and does not do.
"Essentially, the MoU establishes a talking shop for the UK and the EU to discuss matters relating to financial services cooperation between the two jurisdictions, based on the existing EU-US model. It does not compel either side to closer cooperation, such as by agreeing mutual equivalence and ensuring market access.
Were [we] to ask for a single part of this to come to fruition in our sector, it would be the emergence of a regulatory approach toESG in the retail financial services sector.Simon Harrington, head of public affairs at Pimfa"Regardless, it is helpful to firms operating across borders that there will be an established forum for the jurisdictions to discuss tricky issues such as divergence, equivalence, and shared standards."
In 2020, when negotiations with the EU began, the government said it was seeking an agreement similar to the type already agreed with the likes of Canada, and one based on "friendly cooperation between sovereign equals".
It said any agreement between the UK and EU after December should provide a "predictable, transparent, and business-friendly environment for cross-border financial services business".
Since then the chancellor has announced a rolling back of EU regulations such as Mifid II and the Packaged Retail and Insurance-Based Investment Products regulation. It will create its own version of investment disclosure rules instead, meaning they will be different to the EU's.
The Edinburgh reforms announced in December 2022 seek to tip the balance towards economic growth and away from the regulatory risk aversion.
Haran said: "In some areas the UK government has committed to diverge from EU rules, such as retail investment disclosures, albeit typically in a way that targets specific rules rather than via a broad-stroke deregulation.
"The government wants to create a more dynamic and competitive financial services sector by permitting more risk in the system and by adopting a regulatory regime that is better tailored to the UK’s interests.
"The MoU doesn’t undermine the UK’s flexibility to do this, or indeed to make financial services-related agreements with other jurisdictions such as Singapore."
The first big test of this new relationship will be the UK’s Overseas Funds Regime, which is likely to go live later this year, he said.
The OFR will create a new streamlined regime by which some EU Ucits will be given permission to market to UK retail investors.
"The first step is for HM Treasury to determine whether the EU’s Ucits regime is equivalent to the UK’s regime for marketing funds to retail investors.
"We are already seeing the UK regulator impose additional requirements on EU managers that wish to market their funds in the UK, such as in relation to fund value assessments and the upcoming consumer duty.
"Whether the UK grants EU funds easy access or whether it seeks to impose additional, UK-specific conditions on EU managers will be a stress test for the new relationship."
Simon Harrington, head of public affairs at adviser trade body Pimfa, welcomed the agreement.
"This will undoubtedly be of mutual benefit to both sides and support the UK’s role as a global financial services hub," he said.
"While we are certain that the scope of the agreement will be wide ranging, were [we] to ask for a single part of this to come to fruition in our sector, it would be the emergence of a regulatory approach to environmental, social & governance in the retail financial services sector, which is aligned with international standards.
"Ensuring an element of alignment – especially with respect to taxonomy and data standards – will ensure that firms that do operate cross border in this sector will not be required to effectively comply with highly divergent regulatory regimes."
carmen.reichman@ft.com
