Following intensive negotiations, on Christmas Eve, the European Commission reached an agreement with the United Kingdom on the terms of its future trading arrangements with the EU. Given that negotiations could only be finalised at a very late stage before the expiry of the transition period, the Trade and Cooperation Agreement (TCA) will apply initially on a provisional basis for a limited period. The TCA provides for tariff-free and quota-free trade in goods between the EU and the UK and is underpinned by provisions ensuring a level playing field. Almorò Rubin de Cervin, in charge of international affairs at DG FISMA, explains in more detail.

Regime change

The TCA covers financial services in the same way that financial services are generally covered in the EU’s other free trade agreements with third (non-EU) countries. The agreement provides for limited market access commitments for cross-border provision of financial services and preserves the sovereignty and regulatory autonomy of the EU (and the UK). This is a very positive outcome in line with the Commission’s mandate.

It is important to recall that a regime change took place in financial services on 1 January 2021: as the UK has left the EU single market, UK firms can no longer provide services across the EU based on their UK authorisation. In other words, UK firms have lost their passporting rights and are now treated as third-country firms for the provision of financial services in the EU.

The Commission had repeatedly urged stakeholders to prepare for this regime change. For the most part, it is clear that companies have listened to our message. They were prepared and markets remained calm in January.  In fact, there was no major disruption for EU consumers or markets on 1 January, nor in the following days, showing that firms were ready overall.

With the TCA, a four-year period of preparations and negotiations ends. But for financial services, given that the agreement has limited relevance, the beginning of 2021 is the start of a new, complex period. Our bilateral relationship with the UK will be based on voluntary regulatory cooperation outside of the TCA structures.

Moving forward

While trust has been damaged (notably by the now abandoned clauses in the Internal Market Bill that violated the Withdrawal Act), the fact that an agreement has been reached allows us to move forward in a more positive manner than would have been the case. We are now entering a new chapter in our relationship with the UK. London will remain a globally important financial centre on our doorstep and, although a third country, the UK will remain our main partner in the area of financial services.

We should strive for good cooperation with the UK. This will be particularly important in order for us to strategically manage the significant level of interconnectedness between the two jurisdictions. However, we also need to avoid any element of dependency that would translate into reduced autonomy for the EU.

The annex to the TCA contains a “Joint Declaration on Financial Services Regulatory Cooperation between the EU and the UK”. We have committed in this joint declaration to establishing a structured regulatory cooperation framework on financial services by March 2021. It is important to emphasise that the purpose of the cooperation framework is not about market access rights – these have been lost since 1 January. Neither will it constrain the EU’s unilateral equivalence process. Our future financial services relationship with the UK, underpinned by a cooperation framework, will be based on voluntary regulatory cooperation.

With the New Year come new beginnings. We look forward in 2021 to continuing to build efficient and safe markets in the EU, to the benefit of our consumers and businesses, and to shaping the international regulatory agenda, together with the UK and indeed all our other partners.

Read more about the EU-UK free trade agreement

The FISMA negotiating team