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The Governor of the Bank of England, Andrew Bailey, has said he does not expect the EU to open the doors to UK financial services exports after Brexit. He told a news conference on Tuesday: “On equivalence, I think it’s fair to say that nothing really has moved forwards.” After months of wrangling, new rules for trade were finally agreed on Christmas Eve but in a document spanning over 1,200 pages, there was very little mention of financial services – a sector which accounts for seven percent of the UK’s economy and 10 percent of its tax receipts.
Without this recognition, London firms will be blocked from gaining access to the market.
The gloomy comments echo remarks made by Chancellor Rishi Sunak, who said earlier this month that a financial services deal between the two blocs “has not happened” despite the Brexit transition period ending over six months ago.
The UK has recognised equivalence for the EU in several financial service activities, but these have not been reciprocated in Brussels.
It is not the first time Britain finds itself on a collision course with Brussels over financial services.
While the UK was still a member of the EU, the City of London had to fight tooth and nail to protect itself.
In 2011, then-Prime Minister David Cameron’s coalition Government even successfully launched legal action against the ECB, which, at the time, was headed by now-Italian Prime Minister Mario Draghi.
An ECB policy paper wanted to see clearing houses based in the eurozone if they handled more than five percent of the market in a euro-denominated financial product.
But Britain asked the courts to strike down the rule on the grounds it would have restricted the free movement of capital and infringed on the right to establish cross-border businesses across a multi-currency European Union.
If the policy went ahead, it could have undermined London’s financial market infrastructure – as it would have required that clearing houses shifted many of their operations to the eurozone, most likely Frankfurt or Paris.
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A Treasury spokesperson said at the time: “This decision contravenes European law and fundamental single market principles by preventing the clearing of some financial products outside the Euro area.
“That is why we have begun proceedings against the ECB through the European Court of Justice (ECJ).”
On the other hand, the ECB argued that in the interests of financial stability, it was necessary to locate financial market infrastructure in the eurozone so that crises were not handled by multiple central banks with conflicting interests.
Its policy stated: “As a matter of principle, infrastructures that settle euro-denominated payment transactions should settle these transactions in central bank money and be legally incorporated in the euro area.”
Britain ended up emerging as the winner four years later.
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The Luxembourg-based court said in its ruling in 2015: “The ECB lacks the competence necessary to regulate the activity of securities clearing systems as its competence is limited to payment systems alone.”
Former Chancellor George Osborne hailed the verdict as a “major win for Britain and a major win for all those who want to see a European economy that is both open and successful”.
Alexandria Carr, regulatory lawyer at Mayer Brown added: “This is not just a victory for the UK, it is a victory for all those who believe in the internal market and equal treatment for all 28 EU Member States.”
Mr Draghi, who served as President of the ECB from 2011 until 2019, was sworn in as Italy’s next Prime Minister earlier this month.
Among his first major tasks will be to accelerate the vaccination programme and rescue the economy from its worst recession since World War 2.
He has also been tipped to change the future of European politics.
Senior writer at Barron’s Group, Pierre Briançon, wrote on Twitter: “Draghi as Italian Prime Minister does not only change Italy, it could also upset the EU’s comfy balance of power, based for too long on the Franco-German duo.
“A third heavyweight around the leaders’ table.
“Macron and Merkel (and her successor) will have to deal with an influential voice, whose competence in economic and monetary matters dwarfs theirs (to say the least) and whose international aura and prestige at least equals their own.
“Should make for interesting intra-EU dynamics.”
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