British financial firms must set up shop in the European Union or expect disruption on January 1st, the European Commission has warned, as it is unlikely to grant the required equivalency permit to ease access to the bloc’s customers by the end of the year.
“There is no guarantee whatsoever that this will be ready for 1st January. We’ll only take a decision if it’s in our interest,” a senior commission official said. “In general, disruption is to be expected. Firms should really be ready at this stage.”
Equivalence decisions are a declaration that supervision and regulations in the UK are effectively as good as those of the EU, allowing financial firms to offer their services to the bloc’s 450 million citizens without dealing with each separate national regulatory authority.
The commission has recently agreed temporary bridging equivalence for central securities depositories and clearing houses, but these only cover a small part of the services that Britain’s vast financial industry has sold to EU customers in the past.
Initially following the Brexit vote, the British financial industry had also hoped to retain their so-called passport, which allows ability to do business across the EU after being authorised in one state, but these hopes have been quashed.
“From 1 st January, EU rules will apply to UK firms wishing to operate in the EU. UK firms will lose their financial passport: it’ll be anything but business as usual for them. This means they will have to adhere to individual home-state rules in each and every member state,” the official said.
“If UK financial firms want to continue working in all certainty across the Single Market, they’ll have to move to an EU member state.”
The commission has warned that hints from the London government that it plans to deviate drastically from current regulations after January 1st have made it harder to sign off on future access, with equivalence decisions still pending in roughly 28 areas.
“Equivalence has so far been agreed for two very specific areas,” the official said. “This is in the EU’s interest and the objective was to give some firms a few extra months to move to the EU.”
The development would also affect financial services firms headquartered in Northern Ireland who serve clients in the Republic, and companies are urged to adjust ahead of the deadline to prevent sudden disruption in the new year.
Earlier this month the British government announced it would grant equivalency to allow EU-based exchanges, clearing houses and financial benchmarks to continue to be used by customers in the UK.
The equivalence decisions are separate to the negotiations between the EU and London on their future trade relations, which have entered an uncertain phase with time running out to implement a deal and frustration growing in Brussels as talks drag on without a breakthrough.